Fallows & co. on offloading medical risk on seniors

James Fallows, trying to put his finger quickly on what is off-whack about Ryan's voucher replacement for Medicare, has recourse to Fiscal Times correspondent Merrill Goozner (Fallows' emphasis and comment following):

Here's the real argument young and middle-aged people need to hear, and the real reason why the "more skin in the game" argument can never work for seniors or other vulnerable populations, including them when they reach that age. Seniors and the poor account for over half of health care spending. Within those groups, 5 percent of the population accounts for 50 percent of health care costs; and 20 percent of the population accounts for about 80 percent. These costs come for the most part at times when economic incentives have no influence at all on medical decision-making: in medical crises; in treating chronic conditions; and, for most Medicare patients, in the last six months of life.

That's why a voucher program for Medicare, which will shift an increasing share of those inevitable costs onto the elderly themselves, can fairly be categorized as a 100 percent estate tax or death tax. People under 55 need to know that if the plan crafted by Rep. Paul Ryan were passed, most of them will never have a cent to leave to their children. It will all go to the health care industry to support the American way of dying.

Here's a bit of real world evidence supporting that view: Why is the savings rate so unbelievably high in China -- as much as 50 percent of the GDP? There are many reasons, crucially including exchange-rate policy. But a very powerful individual motivator is each family's knowledge that there is no Medicare-like system for their older members. Health care is on cash-payment basis there, and so every family must save like crazy against the risk that the parents or grandparents will require very expensive late-in-life care. More savings would be good for America, but that's not the right way to induce them. It's hard to believe that the Republicans will seriously embrace a plan to undo Medicare.

That evoked a lot of reader response, including from yours truly:

We [already] have that de facto "death tax" in connection with nursing care.

Every family that doesn't have a spare 100k/year effectively rolls the dice regarding how much of an estate may be eaten up by nursing care at the end of life. The only private remedies are 1) LTC [long-term care] insurance, a highly uncertain and problematic product, and 2) strategies to offload assets to children while there's still time.

Perhaps this system is the best we can do right now. There's certainly no will in the U.S. to tax ourselves to the extent that would be needed to provide something like universal LTC coverage. (In an ideal world, how about this bargain: a massive [by US standards] estate tax earmarked for LTC coverage.) But as you suggest, adding near-complete exposure to medical expenses for the elderly would make this risk burden intolerable. I can't believe we're seriously considering it. And in fact, we're not (unless we get a GOP president and Congress before the party changes course...

Perhaps my top-of-the-head proposal would add too much to the tax burden, even in an America unimaginably liberal enough to will it.  Then too, perhaps our expectations of medical resource scarcity, or resource scarcity generally, are too bleak.  There is always the possibility that Atul Gawande will prove prophetic, and the delivery system experimentation kicked off by the Affordable Care Act will trigger a revolution in health care delivery comparable to the revolution in food production achieved early in the 20th century.  Let's dare to dream further that the U.S. manages to gradually offload its defense burden -- perhaps as modeled in the Libya intervention -- and that as multilateral institutions take up some of this slack they also manage to reduce violence to a point where the world as a whole spends far less on military goods and services. At the same time, let's imagine that productivity continues its relentless progress even as the U.S. and global economy finds effective ways to reverse galloping income inequality. At that an (eventually) chastened GOP moves back toward the center and abjures supply side mania...

None of this is really more unimaginable than a peaceful end to the Cold War once was. 

To be cont.: I wanted to respond to this reader response in the Fallows post linked to above, but it will have to wait until after the Passover Seder:

I believe one of the reasons that capitalism works well is that everyone has the opportunity to allocate their resources the way they see fit, which leads to (in general) people purchasing the goods that maximize their utility / happiness.  This leads to a prioritization of goods, which in turn drives the economy to produce those goods and maximizes overall efficiency.  In the case of end of life healthcare, this system has broken down.  Almost everyone desires to live longer, just as everyone desires to live in a massive house, drive a Ferrari, and fly by private jet. 

However, unlike almost every other good, the end-of-life healthcare does not cost the consumer anything - it is provided by the government at almost no cost (to the consumer).  As a consequence, it is consumed far beyond its utility to the consumer.  Introducing costs to the consumer will make this decision a choice that requires deliberation and thought: do I spend all of my remaining funds (the inheritance for my children) on pro-longing my life a few more months, or do I forgo that extra time so that my relatives can have an inheritance that will benefit them more than the extra months will benefit me?  I think that question will lower end-of-life care and improve overall allocation of resources.