What Are “Medicare Costs”?

For some reason, David Brooks thinks that “the priority in this election is to get a leader who can get Medicare costs under control.”

That’s certainly not my priority, nor most other people’s priority, but I think that if we’re going to discuss it we ought to try to get some conceptual clarity on what “Medicare costs” are. If by “Medicare costs” we just mean “aggregate Medicare spending” then it’s easy. You cap aggregate Medicare spending the same way you cap aggregate U.S. Navy Spending or aggregate Department of Housing and Urban Development spending, namely you set a statutory cap on how much money the program is allowed to spend. It’s easy as pie. I don’t mean to be flip, but that’s really all there is to it. The reason HUD only spends so much money in any given year is that it’s only allowed to spend that much money. Statutory spending caps are a foolproof way to prevent programs from spending more money than legislators want them to spend.

But I think most people have something in their heads about reducing the rate of spending increase in a way that’s cost-effective. But is it better to cut wasteful medical spending or useful medical spending? In a weird way it’s better to cut useful medical spending. If old people die sooner, then that saves us Social Security money as well.

In broad economic terms, the problem with senior citizens is that they’re retired. Just idle mouths to feed, collecting governmnt benefits and spending down wealth accumulated in the past. In terms of per capita GDP, the quicker they die the better. But it sounds perverse to say that the goal of our Medicare reform policy should be to kill the elderly as quickly as possible. Indeed it sounds perverse because it is perverse. But again the question is what are the “costs” of Medicare that we’re worried about? If we’re not worried about the impact on economic growth, then it isn’t obvious why high levels of Medicare spending is a problem. But if we are worried about the impact on economic growth, then the biggest problem with Medicare isn’t that it’s wasteful it’s that it may be succeeding in its policy objective of keeping retirees alive and healthy.

As I said with regard to the general issue of “health care costs” this question is much more complicated on a conceptual level than is generally acknowledged.