What Has the Health Care Inflation Rate Been?
Department of "Huh?!?!?!?!": Hopelessly Muddled Monetary Economics Edition

Federal Government Health Care Costs: Ezra Klein on How Paul Ryan Continues to Try to Mislead--Well, Mislead Pretty Much Everyone

Ezra Klein:

Responding to Ryan - Ezra Klein - The Washington Post: In this post, I’m going to focus on [Paul Ryan's] two most important arguments.... The first argument can be summed up as “look at Medicare Part D,” the second as “look at the rest of the world.”

”Our premium-support plan is modeled after the Medicare Part D prescription-drug program,” Ryan writes.... Since 2006 — the first year of the benefit — Medicare Part D’s average premium has risen by 57 percent (pdf). Between 2010 and 2011, premiums rose by 10 percent.... [T]he program’s actuaries expect (pdf) expenditures “to grow at an average annual rate of 9.7 percent for the 10-year period 2011 to 2020.” That may be an excellent performance when compared with the Congressional Budget Office’s initial projections. But it’s a lot faster than inflation, which is what Ryan needs for his [Medicare] plan to work. Moreover, Part D’s performance vis-a-vis the early projections has had less to do with the program itself and more to do with sectorwide trends in the pharmaceuticals market.... Ryan’s plan is capped while Medicare Part D isn’t. In Part D, the federal government pays, on average, 74 percent of program’s costs. And that support grows alongside the program’s costs. Ryan’s plan covers about a third of beneficiary costs, and that support grows at the rate of inflation — so much more slowly than the rest of the program, or than Medicare Part D. This has always been the main criticism of Ryan’s plan, and Medicare Part D’s structure shows what a radical decision he made to structure it like that.

Which brings us to the rest of the world. I asked Ryan how he could say that government control never works in health care when Germany, the Netherlands, France and other countries pay so much less, and get as much or more, than we do. Ryan’s reply... is basically a dodge. First, he changed the countries: He moved to Canada and the United Kingdom rather than the examples I mentioned.... But even so, Ryan’s wrong to draw an equivalence between our costs and theirs. In 2008, Canada spent about $4,000 per person, per year, on health care. The United Kingdom spent a bit more than $3,000. We spent about $7,400.... [S]uggesting that we’re all facing the same sort of pressure is flatly wrong....

In both of his major arguments, Ryan focuses on the wrong numbers. When defending Medicare Part D, he argues that it came in cheaper than expected, ignoring both the reasons behind that performance and the fact that growth in the program was nevertheless much faster than his plan could bear. When attacking the systems in other countries, he cherrypicks numbers to demonstrate they want to save money... but ignores the numbers showing that they spend half as much as we do. The result is that he gives people the wrong impression of both Medicare Part D and health systems across the world....

[W]e both agree that controlling health-care costs is an urgent priority, that maintaining and improving quality a necessary task, and that none of this will be easy. But that just underscores how important it is for us to be realistic about what we can do, clear-eyed about what has and hasn’t worked elsewhere, and open to ideas that don’t fit with our philosophical preferences.