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What Can We Learn about the Ryan Medicare Plan from German Experience?

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Ed Dolan
Ed Dolan

The document discusses the Republican plan to reform Medicare known as the Ryan Plan and compares it to the German health care system. The Ryan Plan would replace the current Medicare system with one where seniors choose private insurance plans subsidized by the government. The German system is similar and includes choice among approved plans. While the German system costs less per capita than the US system, it includes cost control regulations that the Ryan Plan lacks. For the Ryan Plan to be sustainable, cost controls would likely be needed to prevent seniors' costs from rising rapidly over time.

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More Slides from Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/ What Can We Learn about the Ryan Medicare Plan from German Experience? Posted April 21, 2011 Terms of Use: These slides are made available under Creative Commons License Attribution—Share Alike 3.0 . You are free to use these slides as a resource for your economics classes together with whatever textbook you are using. If you like the slides, you may also want to take a look at my textbook, Introduction to Economics , from BVT Publishers.
Medicare in the Republican Path to Prosperity The US House of Representatives has recently approved a budget plan called The Path to Prosperity . It includes a plan to reform Medicare devised by Representative Paul Ryan. What can we learn about the Ryan plan by looking at the German health care system, where a similar system has existed for many years? Posted April 21, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com
The Ryan Plan for Medicare Reform Medicare is currently a government-run, single-payer system The Ryan plan would replace the current system with one under which seniors would choose coverage from a list of approved private insurers The government would pay part of the cost of insurance. The payment would increase at the same rate as the Consumer Price Index If the cost of health care continued to increase faster than the CPI, as it has in the past, the beneficiary’s share of health care costs would grow over time Posted April 21, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com Praise for the Ryan Plan Having more control over their health care spending would encourage consumers and patients to make better health care choices. It would stimulate more innovative and accountable competition by health care providers and give them incentives to better coordinate the care of their patients. Enhanced competition could offer seniors relief from rising Medicare premiums. Just as important, this reform could begin to ease the crushing tax burden imposed by the current program on our children and grandchildren. From an open letter posted on the web site of the American Enterprise Institute
The German Health Care System The German government’s health care system is considered the world’s oldest, dating to the rule of Otto von Bismarck in the 19 th century Most Germans, including most seniors, are covered by a plan that gives them a choice of coverage from a list of “sickness funds,” which pay for services purchased from private physicians and hospitals Premiums are paid partly by the government and partly deducted from pensions In broad outline, the German system is closer to the Ryan plan than to today’s Medicare Posted April 21, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com Otto von Bismarck, 1815-1898 Photo source: http://commons.wikimedia.org/wiki/File:General_Otto_von_Bismarck.jpg
WHO Ranking of World Health Care On the whole, the German health care scores well on international comparisons One of the most widely cited international rankings of health care systems was published by the World Health Organization in 2000* France ranked No. 1, the US No. 37, and Germany 25 th of 190 countries covered The ranking was based on a weighted average of measures of population health, distribution of health care, fairness of the financial burden, and efficiency Posted April 21, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com *For the full survey, see WHO, http://www.who.int/whr/en/ . A convenient summary of the main findings can be found at http://www.photius.com/rankings/healthranks.html
Amenable Mortality A less subjective method of ranking health care systems is based on amenable mortality rates The amenable mortality rate measures the death rate from causes that can be cured or prevented by good medical care This ranking shows a lower amenable mortality rate for Germany than for the US The rate of decrease of amenable mortality is also greater in Germany Posted April 21, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com
Health Care Costs in US Dollars per capita The German health care system delivers better health care than the US system, at half the cost, measured in dollars per capita As of 2008, German health care spending amounted to 10.5 percent of GDP, compared with 16 percent for the United States Posted April 21, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com
Cost Controls in the German Health Care System The Ryan plan depends primarily on market competition among insurers to control the growth of health care spending The German system, in contrast, includes a broad range of cost-control regulations to supplement the effects of competition Posted April 21, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com Cost control measures in the German system National and regional budgets to cap total quarterly health-care outlays. Diagnosis-related groups to reimburse hospitals for care of patients with specific conditions A reference-price system for drugs Disease management programs for chronic conditions like diabetes and heart disease A national institute that assesses the effectiveness of medical treatments and products
Health Care Cost Trends German health care expenditures grew sharply following reunification During the 1990s, cost control regulations were tightened Since that time, health care expenditures have grown only slightly as a share of GDP in Germany In contrast, costs have continued to increase rapidly in the United States Posted April 21, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com
Effects of Growth of Health Care Costs under the Ryan Plan Under the Ryan Plan, the government share of health care costs is capped at the rate of growth of the CPI If US health care costs continued to grow as rapidly as they have in the past, the Ryan plan would lead to a steady increase in the share of income that seniors would have to spend to purchase Medicare-equivalent insurance Posted April 21, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com Projected cost of purchasing a Medicare equivalent health care plan, as percentage of median income of beneficiaries, assuming no change in growth of health care costs 2022 35% 2030 44% 2050 68% Estimates by the Center for Economic Policy Research, based on CBO data http://www.cepr.net/documents/publications/ryan-medicare-2011-04.pdf
The Bottom Line: Lessons from German Experience There is nothing inherently unrealistic about a health care plan based on competing private insurers Competition alone is not likely to be enough to control costs under the Ryan plan. A full suite of cost-control regulations would be needed If the growth of health care costs were not controlled, the individual’s share of health care costs would grow rapidly under the Ryan plan, creating irresistible political pressure to increase government benefit payments, which would negate promised budget relief Posted April 21, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

More Related Content

What Can We Learn about the Ryan Medicare Plan from German Experience?

  • 1. More Slides from Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/ What Can We Learn about the Ryan Medicare Plan from German Experience? Posted April 21, 2011 Terms of Use: These slides are made available under Creative Commons License Attribution—Share Alike 3.0 . You are free to use these slides as a resource for your economics classes together with whatever textbook you are using. If you like the slides, you may also want to take a look at my textbook, Introduction to Economics , from BVT Publishers.
  • 2. Medicare in the Republican Path to Prosperity The US House of Representatives has recently approved a budget plan called The Path to Prosperity . It includes a plan to reform Medicare devised by Representative Paul Ryan. What can we learn about the Ryan plan by looking at the German health care system, where a similar system has existed for many years? Posted April 21, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com
  • 3. The Ryan Plan for Medicare Reform Medicare is currently a government-run, single-payer system The Ryan plan would replace the current system with one under which seniors would choose coverage from a list of approved private insurers The government would pay part of the cost of insurance. The payment would increase at the same rate as the Consumer Price Index If the cost of health care continued to increase faster than the CPI, as it has in the past, the beneficiary’s share of health care costs would grow over time Posted April 21, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com Praise for the Ryan Plan Having more control over their health care spending would encourage consumers and patients to make better health care choices. It would stimulate more innovative and accountable competition by health care providers and give them incentives to better coordinate the care of their patients. Enhanced competition could offer seniors relief from rising Medicare premiums. Just as important, this reform could begin to ease the crushing tax burden imposed by the current program on our children and grandchildren. From an open letter posted on the web site of the American Enterprise Institute
  • 4. The German Health Care System The German government’s health care system is considered the world’s oldest, dating to the rule of Otto von Bismarck in the 19 th century Most Germans, including most seniors, are covered by a plan that gives them a choice of coverage from a list of “sickness funds,” which pay for services purchased from private physicians and hospitals Premiums are paid partly by the government and partly deducted from pensions In broad outline, the German system is closer to the Ryan plan than to today’s Medicare Posted April 21, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com Otto von Bismarck, 1815-1898 Photo source: http://commons.wikimedia.org/wiki/File:General_Otto_von_Bismarck.jpg
  • 5. WHO Ranking of World Health Care On the whole, the German health care scores well on international comparisons One of the most widely cited international rankings of health care systems was published by the World Health Organization in 2000* France ranked No. 1, the US No. 37, and Germany 25 th of 190 countries covered The ranking was based on a weighted average of measures of population health, distribution of health care, fairness of the financial burden, and efficiency Posted April 21, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com *For the full survey, see WHO, http://www.who.int/whr/en/ . A convenient summary of the main findings can be found at http://www.photius.com/rankings/healthranks.html
  • 6. Amenable Mortality A less subjective method of ranking health care systems is based on amenable mortality rates The amenable mortality rate measures the death rate from causes that can be cured or prevented by good medical care This ranking shows a lower amenable mortality rate for Germany than for the US The rate of decrease of amenable mortality is also greater in Germany Posted April 21, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com
  • 7. Health Care Costs in US Dollars per capita The German health care system delivers better health care than the US system, at half the cost, measured in dollars per capita As of 2008, German health care spending amounted to 10.5 percent of GDP, compared with 16 percent for the United States Posted April 21, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com
  • 8. Cost Controls in the German Health Care System The Ryan plan depends primarily on market competition among insurers to control the growth of health care spending The German system, in contrast, includes a broad range of cost-control regulations to supplement the effects of competition Posted April 21, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com Cost control measures in the German system National and regional budgets to cap total quarterly health-care outlays. Diagnosis-related groups to reimburse hospitals for care of patients with specific conditions A reference-price system for drugs Disease management programs for chronic conditions like diabetes and heart disease A national institute that assesses the effectiveness of medical treatments and products
  • 9. Health Care Cost Trends German health care expenditures grew sharply following reunification During the 1990s, cost control regulations were tightened Since that time, health care expenditures have grown only slightly as a share of GDP in Germany In contrast, costs have continued to increase rapidly in the United States Posted April 21, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com
  • 10. Effects of Growth of Health Care Costs under the Ryan Plan Under the Ryan Plan, the government share of health care costs is capped at the rate of growth of the CPI If US health care costs continued to grow as rapidly as they have in the past, the Ryan plan would lead to a steady increase in the share of income that seniors would have to spend to purchase Medicare-equivalent insurance Posted April 21, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com Projected cost of purchasing a Medicare equivalent health care plan, as percentage of median income of beneficiaries, assuming no change in growth of health care costs 2022 35% 2030 44% 2050 68% Estimates by the Center for Economic Policy Research, based on CBO data http://www.cepr.net/documents/publications/ryan-medicare-2011-04.pdf
  • 11. The Bottom Line: Lessons from German Experience There is nothing inherently unrealistic about a health care plan based on competing private insurers Competition alone is not likely to be enough to control costs under the Ryan plan. A full suite of cost-control regulations would be needed If the growth of health care costs were not controlled, the individual’s share of health care costs would grow rapidly under the Ryan plan, creating irresistible political pressure to increase government benefit payments, which would negate promised budget relief Posted April 21, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com