Some Inconvenient Truths About Medicare and the New 'Public Plan'

By Regina Herzlinger and Robert Book

[Remember, Medicare is also a government program that has run, already, into serious trouble.]

The fundamental problem with health care reform is the absence of realistic plans to reduce unit costs. Without cost controls, tens of millions of newly-insured people will further cripple U.S. global competitiveness, which is already grievously injured because the U.S. spends roughly 70 percent more on health care, as a percentage of GDP, than other developed nations, yet cannot point to commensurate 70 percent increases in value.

[Those who ignore the past are condemned to repeat it!]

Medicare's alleged cost-controlling ability is illusory, driven by faulty math, regulatory power to shift costs to the private sector, and pricing formulas that pass expenses to taxpayers and future generations.

The 800-pound gorilla is Medicare's unfunded liability for future benefits, estimated by Medicare Trustees at $38 trillion. Medicare created this massive liability by charging current enrollees too low a price: government used the payments by working non-beneficiaries to make up the shortfall. If Medicare were a private insurance company, it would have to increase its costs by an additional trillion dollars annually to account for the interest on this debt (assuming 3% interest). But the federal government's accounting ignores this expense. [What would happen if you pretended that you really didn't have certain expenses? You'd end up in jail where I'm convinced at least half these crooks belong!]

Will government continue to rob Peter to pay Paul when it prices the new public plan? If so, an estimated 83 million people would eventually move out of private plans into a grossly underpriced Medicare, vastly increasing the liability. At $38 trillion, it already equals than two and a half times 2008 GDP.

Medicare's cost advantages are dubious in other ways...

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