Rationing Seniors’ Health Care

I believe the National Center for Policy Analysis is the only think tank, right or left, that has consistently addressed two problems:

1.  The need to choose between health care and other uses of money.

2.  The impossibility of paying for health care for the elderly with Ponzi scheme financing.

We have focused on these issues for more than two decades.

Eventually others will come around. As with the AIDS crisis in Africa, even politicians and rock stars will get clued in – but in all probability after it is 25 years too late.

In the meantime, warning signs are everywhere. The Medicare Trustees tell us Medicare has an unfunded liability six times the size of Social Security and it is on an unsustainable spending path.  The Congressional Budget Office (CBO) tells us that to pay health care bills by midcentury, the average family’s federal income tax rate will have to be 66 percent and the highest income tax rate will reach 92 percent. (At the CBO they don’t believe in the Laffer Curve.)

So what is Congress doing about all this? Searching for ways to create new health care programs for more beneficiaries! (Hey, if the ship is going down, everybody should enjoy the party while it lasts.)

Any meaningful reform needs to slow the growth of health spending. That means someone must choose between useful health care and other uses of money. Who should that someone be?  These decisions could be made by the government (as it is in other countries), by insurers operating under government rationing rules, by doctors or by seniors themselves.

A new study by NCPA Senior Fellows Thomas Saving and Andrew Rettenmaier looks at this question.  Saving is a trustee of Medicare and the model underlying the study uses the same assumptions as the Social Security and Medicare trustees.

  • One option: upon reaching age 65, beneficiaries would enroll in a health plan in which government spending on each senior’s health care is indexed only for inflation, rather than increasing automatically with health care costs.  Although this option would deny many seniors access to new technology, it would reduce Medicare’s unfunded liability up to 40 percent.
  • A second option: a health plan with a $5,000 deductible (indexed to inflation) coupled with a Roth-type Health Savings Account (HSA).  This reform would encourage seniors to make their own choices between health care and other spending; it would also reduce Medicare’s unfunded liability by as much as 40 percent.

Even under the harshest rationing schemes, more than half the system’s deficit remains.  That means we are also going to have to start thinking about having each generation of retirees save for their own retirement health care needs.  More on that in a future study.

For the study, “Medicare: Past, Present and Future,” go to:


Comments (10)

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  1. Ron Lindsey says:

    Option 1 would be a killer. Higher education inflation is the only thing that has exceeded health care inflation in recent times. Hooking the baby boomers into that would be political suicide.

    You are right when you say you are the only think tank looking at options. Keep up the good work.

  2. Dr. Bob says:

    One of the problems with our polarized political system is that it is more important to win the argument than to find the solution.

    Dr. Bob

  3. Lawrence Becker says:

    We need to push HARD for data both on quality and price – so it is apparent to all what they are paying for AND what they are getting. I believe that once people understand what they are paying for they will demand more value from every transaction and not more services. If Wennberg and Fisher are even close to right, that’s a 30% reduction in spending – I’ve seen recent estimates of up to 50% savings. But without data and measures, healthcare is like bowling with a black curtain in front of the pins.

  4. John Goodman says:

    Mark Pauly reminds us the first plan is something he originally proposed in Health Affairs a few years ago to, in his words, “thundering silence.”

  5. Pat King says:

    I think that definitely we need more incentives for seniors (and all of us) to seek out good value in health care, more price and quality data, and incentives for healthy lifestyle choices and the appropriate preventive care. But in my opinion, these measures alone won’t solve the problem unless we also face up to the horrible “R” word at some point. We all know that a high percentage of Medicare expenditures occur in the last 6 months of life. We’ve been unwilling as a society to accept the idea that there has to be a limit on expensive but medically futile care.

  6. Roger Beauchamp says:

    I believe society, as a whole, would benefit by indexing the number of dollars that can be excluded to the CPI, rather than health care inflation. Since Medicare is financially unsustainable, seniors should be permitted to voluntarily exclude money for health care needs in a Health Financing Account. This would treat them the same as all other citizens. My feeling is that Medicare would evolve into more of a hospitalization program, with the majority of our citizens maintaining control over the choice of their doctor and the services they choose to receive. I am no expert on Medicare. I do think about what principles treat all citizens as fairly as possible to get the best value for the health care dollar.

  7. Charles Akins says:

    The only person who can solve our health care crisis is Adam Smith and his golden hand of self-interest.
    Cosmetic plastic surgery and refractive (LASIC) eye surgery have improved in quality and fallen in price. These procedures are controlled by the free market. The same changes would occur if the free market was allowed to work its magic on other areas of medicine.

  8. Michael King says:

    I believe the key to quality healthcare is in choosing the right plan. While the healthcare system does need improvement if Americans take the time to research and find the right plan it can at least be manafeable. The Medicare system is getting better also. There are many more options these days for medicare insurance. I think it all depends on making wise decisions

  9. Max says:

    Hi – just wanted to say good design and blog .

  10. Family and General Practice in New Jersey says:

    Option 1 would be a killer. Higher education inflation is the only thing that has exceeded health care inflation in recent times. Hooking the baby boomers into that would be political suicide.

    You are right when you say you are the only think tank looking at options. Keep up the good work.