Tuesday, September 20, 2011

Here's another way to look at Medicare

Proponents of a greater role for the state in the provision of health care love Medicare. They say it's cheap (even as it heads for bankruptcy) and popular. Indeed, my guess is that much of the President's reelection campaign will be driven by MediScare.

But Medicare is a mess driven by a hidden subsidy. In discussing Netflix' problems with its provision of free or inexpensive streaming, Megan McCardle sums it up. Netflix could obtain licenses for content inexpensively as long as it did not threaten providers' normal distribution channels. Those channels would cover the average cost of producing content and, as long as Netflix paid more than the marginal cost of providing the content to it, licensers were happy to accept the additional revenue. A great deal for Netflix but not one that could be extended to the marketplace as a whole. She writes:

You can get a sweet deal if you are the customer who gets marginal cost pricing. Medicare does this--reimburses hospitals at above their marginal cost, but below their average cost, so that private insurers have to pick up most of the hospital overhead. European countries do this with prescription drugs: reimburse above the marginal cost of producing the pills, but below the total cost of developing the pills, so that the US has to pick up most of the tab for drug development.

But just as providers of content cannot extend Netflix' pricing to the rest of the market, Medicare cannot become the model for the entire market.


Anonymous said...

And you would do what to replace it? Rely on the private sector? You do understand that before Medicare most elderly had no health insurance, and poverty rates for the elderly were higher?

Leave it up to charity and ability to pay? What are the moral implications of that?

Anonymous said...

Oh, and this is rich:

"my guess is that much of the President's reelection campaign will be driven by MediScare. "

He would be taking cues from the Republican Party's MediScare tactic in 2010 right? After all this is a party that explicitly wants to reduce Medicare benefits, that chose to run against cuts to Medicare in the 2010 midterms. The best part is that they cried about cuts to Medicare Advantage, which is more expensive than regular Medicare.

Frankly, if we had a well educated populace that didn't put up with B.S., they should have been laughed off the stage.

Rick Esenberg said...

Anon 7:32

Replace what? I don't recall calling for the end of anything.