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Did Gingrich Correctly Predict Medicare’s Demise?

Don't Steal From Medicare to Support Socialized Medicine

Austin Frakt points us to what he terms “Gingrich’s Correct Prediction About Medicare’s Future.”

On Oct. 24, 1995, Newt Gingrich made an assertion about what would happen to Medicare if its beneficiaries could choose between it and private plans. Medicare is “going to wither on the vine because we think people are voluntarily going to leave it — voluntarily.” Though he later walked this statement backmany observers viewed it as an attack on the program.

In fact, over the nearly two decades since, Mr. Gingrich’s claim has undergone something of a test — and it has largely passed it.

While I’d forgotten Gingrich’s prediction, the assertion that he got it right intrigues me, given that I have been operating under the assumption that Medicare was still operating and covering more people than ever.

In that time, Medicare beneficiaries have enjoyed various levels of access to private alternatives to traditional Medicare through the Medicare Advantage program and its predecessors. These private Medicare plans must provide at least the same level of benefits as traditional Medicare, though may offer more generous benefits voluntarily. They are subsidized by the federal government, often to the degree that many beneficiaries pay no premium even when receiving more benefits than they would from the traditional program.

Federal financial support for these alternative plans has waxed and waned, and enrollment in them with it. When government payments to plans were lower — as they were in the early 2000s — fewer plans participated, and those that did offered relatively less generous benefits; enrollment declined. When government payments to plans were higher — as they were beginning in the mid-2000s — enrollment increased.

Today, 30 percent of Medicare beneficiaries are enrolled in a Medicare Advantage plan, more than at any time in history. In some states, like Hawaii and Minnesota, about half of Medicare beneficiaries are in such plans. This is despite the fact that government payments to plans were cut by the Affordable Care Act. They’re down eight percentage points from their peak in 2009, as measured relative to the cost of traditional Medicare coverage. Still, taxpayers pay more to cover a beneficiary in Medicare Advantage than in traditional Medicare.

So, 70 percent of those eligible remain enrolled in Medicare while another 30 percent are enrolled in a private plan the cost of which is heavily subsidized by the taxpayer? On the surface, at least, that doesn’t sound like what Gingrich was suggesting nineteen years ago. Looking at the original 1995 story itself doesn’t dissuade me from that view:

Now let me talk a little bit about Medicare. Let me start at the vision level so you understand how radically different we are and why it’s so hard for the press corps to cover us.

Medicare is the 1964 Blue Cross plan codified into law by Lyndon B. Johnson, and it is about what you’d — I mean, if you all went out in the marketplace tomorrow morning and said, “Hi, I’ve got a 1964 Blue Cross plan,” I’ll let you decide how competitive you’d be. But I don’t think very.

So what we’re trying to do, first of all, is say, O.K., here is a government monopoly plan. We’re designing a free-market plan. Now, they’re very different models. You know, we tell Boris Yeltsin, “Get rid of centralized command bureaucracies. Go to the marketplace.”

O.K., what do you think the Health Care Financing Administration is? It’s a centralized command bureaucracy. It’s everything we’re telling Boris Yeltsin to get rid of. Now, we don’t get rid of it in round one because we don’t think that that’s politically smart, and we don’t think that’s the right way to go through a transition. But we believe it’s going to wither on the vine because we think people are voluntarily going to leave it — voluntarily.

Frakt is a genuine expert in the economics of healthcare and there’s no reason to think his analysis here is in anything but good faith. So what am I missing?

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About James Joyner
James Joyner is the publisher of Outside the Beltway, an associate professor of security studies at the Marine Corps Command and Staff College, and a nonresident senior fellow at the Atlantic Council. He's a former Army officer and Desert Storm vet. He has a PhD in political science from The University of Alabama. Views expressed here are his own. Follow James on Twitter.

Comments

  1. Dave Schuler says:

    Since Medicare Advantage, which is what’s being talked about when you speak of “a private plan the cost of which is heavily subsidized by the taxpayer”, is being squeezed by the PPACA, I’m not sure it makes a difference.

    The PPACA requires that reimbursement for Medicare Advantage be no higher than that for traditional Medicare on a county level. That strips a good deal of the advantage from Medicare Advantage.

    Since pracitically by definition Medicare Advantage is more expensive, that makes sense from a government cost-effectiveness standpoint.

    And of course seniors go where the subsidies are the highest. In aggregate they’re behaving rationally. What else would you expect?

    Like or Dislike: Thumb up 5 Thumb down 0

  2. Rick DeMent says:

    The idea that health insurance can ever work in anything like a “free market” is a fantasy outside the realm of procedures that are, in the end, optional (cosmetic, Lasky, and so on). What is clear as Dave pointed out is that at the end of the day, we’re all socialists. The difference is that in the old days only larger capitalist companies could afford to chase government subsidies, now individuals such as middle class seniors can too :)

    Like or Dislike: Thumb up 14 Thumb down 0

  3. Scott says:

    Since payments to physicians and hospitals are the same whether Medicare or Medicare Advantage pays, the issue is whether private plans or government is the cheaper administrator. Given my experience with insurance companies, somehow I doubt that private insurance companies are more efficient overall.

    Like or Dislike: Thumb up 3 Thumb down 0

  4. Mikey says:

    @Rick DeMent: I’ve come to believe Americans want all the social safety net stuff Europeans have, but without having to actually pay for it.

    (Or, perhaps (and less charitably) without having to pay for other people to have it…)

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  5. DrDaveT says:

    Awesome photo, James. What’s the source?

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  6. Ron Beasley says:

    At 68 I’m on Medicare with a Medicare Advantage plan. I lost my corporate job when I was 56 when the tech bubble burst. When COBRA ran out when I was 57 the vast majority of insurance companies didn’t even want to talk to me and those that did offered plans that were outrageously expensive and payed for virtually nothing. So I had no insurance until I turned 65. The “free market” in this case simply doesn’t work.

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  7. Barry says:

    James: “So, 70 percent of those eligible remain enrolled in Medicare while another 30 percent are enrolled in a private plan the cost of which is heavily subsidized by the taxpayer? On the surface, at least, that doesn’t sound like what Gingrich was suggesting nineteen years ago. Looking at the original 1995 story itself doesn’t dissuade me from that view:”

    In other words, if people can supplement their public benefits with a lavishly subsidized set of further benefits, some do.

    And Frakt thinks that that means that the public program is withering away?

    I think that we know where to file further ‘analysis’ on his part.

    Like or Dislike: Thumb up 6 Thumb down 0

  8. Ron Beasley says:

    I don’t think that many realize what a Medicare Advantage plan is. I still pay my Medicare premium every month. I also pay a premium for my Medicare Advantage plan but it’s a small fraction of my actual Medicare premium. I have a Medicare Advantage plan because a vast majority of doctors around here won’t except straight Medicare anymore which has more to do with paper work than anything else – Medicare is still the one paying the most of the bill. So Medicare Advantage is not really “private insurance.” If not for Medicare United Health Care wouldn’t even talk to me at 68.

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  9. James Joyner says:

    @Ron Beasley: That was my understanding as well. That’s why I can’t understand why “Advantage” substituting for a fraction of “Classic” proves Gingrich was right.

    Like or Dislike: Thumb up 6 Thumb down 0

  10. rudderpedals says:

    I think that YHBT

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  11. al-Ameda says:

    I know many people (including my father and father-in-law, and countless relatives and friends of family) who augment or supplement their Medicare coverage with additional catastrophic or long-term health care insurance. This hardly represents the demise of Medicare.

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  12. Ron Beasley says:

    @James Joyner: It’s analogous to the many large corporations that are self insured but pay an insurance company to administer the plan.

    Like or Dislike: Thumb up 0 Thumb down 0

  13. C. Clavin says:

    Wait…Medicare has demised?

    Like or Dislike: Thumb up 3 Thumb down 0

  14. JohnMcC says:

    Having lived through Mr Gingrich’s ‘revolution’, I believe I know what his meaning was. I bet he was claiming that the wonders of the market would create much improved insurance products and that the archaic and hopelessly bureaucratic government insurance would trail behind; he thought that people would compare products and that the “government insurance” would be much worse. The “market” would decide that the gov’t could not succeed in the insurance business.

    Pretty sure that didn’t happen.

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