Doubling-Down on the Granny Killing

The man who invented the strategy used by Paul Ryan to gut Medicare, one Henry Aaron (no, I’m not making that up) says the plan will not work.  He says many of the assumptions he made during the creation of the plan have proven wrong.  Therefore the plan as a whole should be scrapped.

The basic idea is simple: let people pick their health insurers in the private market, subsidize the premiums, and competition will drive down costs. That’s the theory behind Ryan’s plan, recently endorsed by Sen. Ron Wyden (D-Ore.) in a white paper the two wrote.


The big reason is that Aaron has seen no evidence since the two men came up with the idea that their assumptions have been borne out.


But in the case of Medicare Advantage, similar to premium support in that Medicare pays a private insurer to cover someone, the attempts at risk adjustment have raised costs by about 8 percent, Aaron noted. On top of that, although there are many Medicare Advantage plans in existence, they are not cheaper than traditional Medicare, and there’s little to suggest they will get cheaper.

“The evidence to date is not encouraging,” Aaron said, noting a recent study that isolated the effects of competition on Medicare Advantage costs from government-related influences. “After controlling for all those factors, Medicare Advantage plans are more expensive than is traditional Medicare.”

Health insurance does not work as a “free market” product.  The information asymmetries are too great.  Back in 1963, economist Kenneth Arrow wrote the seminal paper on the problems in “marketizing” health insurance.  It boils down to the following characteristics and problems of health insurance:

Look for Paul Ryan to double-down on his granny-killing strategy to create a sub-optimal solution to a problem the rest of the developed world has already solved through government-sponsored single-payer health insurance.


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