The Romney Medicare Plan

Medicare spending is out of control.

A key reason is that the government is inefficiently shoving its clumsy hand across the program, demonstrating a failure to understand the power of the free market. When individuals feel an inaccurately small marginal cost for a good, they purchase too much of that good.

Too much medical care? Yes. Especially when the agency footing most of the bill is the federal government (aka, the free and brave taxpayers of the United States).

Here is a visualization of the problem  (adapted from the Office of Retirement and Disability Policy Statistical Supplement of 2009):

The blue line is how much enrollees are paying for Medicare part B each month – think of it as the marginal cost they feel for getting more care (monthly payments don’t do a great job of accurately conveying marginal cost, but under the current system, that’s what they pay for part B). The red line is how much the government pays for part B, per enrollee. The trend is not encouraging.

The Romney campaign, Paul Ryan, and other responsible leaders have put forward a plan for Medicare that deals with this issue, reigning in costs without hurting quality for each senior. In short, the plan shifts the role of the government: “Instead of paying providers directly for medical services, the government’s role will be to help future seniors pay for an insurance option that provides coverage at least as good as today’s Medicare, and to offer traditional Medicare as one of the insurance options that seniors can choose.”

“Help future seniors pay” means helping them afford care while letting them make accurate market decisions based on true marginal costs. Using incentives (be sure to watch the interview at the end, 11:40 to 12:40, pre-bates over rebates) to help people make choices that help them and help taxpayers – sounds like an efficient plan to me.

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