How Will We Deal With Seemingly Imminent Cuts to Medicare?

With national debt set to exceed GDP this year, it’s pertinent that the US get its financials in order — and serious cuts to spending seem unavoidable. Medicare, one of the single largest government expenditures, has been under the chopping block since the outset. The question is, how do we best go about making cuts to Medicare if they must happen?

The federal government dictates what services Medicare covers, how much doctors and hospitals will be paid, the cost of prescriptions, etc. One concern is if the government cuts prices too much, providers will quit providing services that aren’t profitable, even if they are necessary. But paying providers marginally profitable rates for certain services will likely result in them over-performing those services, often giving patients unneeded tests and prescriptions and inflating government costs.

The U.S. government chose the latter course, which is why Medicare cost the government $523 billion last year. Had they chosen the former, according to the popular thinking behind Republicans’ proposed cuts, then patients and consumers would’ve been the ones to suffer. Sounds like a lose-lose situation, right?

But according to Rep. Paul Ryan, who presented his strategy for cutting spending in his budget proposal earlier this year, the people, and not the government, should be the ones to decide how to spend the money given them by Medicare. They should decide whether they think tests are necessary, what prescriptions and hospital visits they truly need, and Ryan contends that they will save money while providers will be forced to compete for business, keeping prices at reasonable levels while increasing quality. The government has already tested this hypothesis with Medicare Part D, which took effect in 2006. The program lets users choose from competing private plans for prescription-drug coverage, and it has reduced costs by 45% more than had been predicted.

According to Ryan, the one problem with the healthcare industry that has allowed prices to get so out of hand has been the fact that it doesn’t operate like free markets, which would allow consumers to keep it in check and make providers responsible for their own success or failure. The question is, would Ryan’s plan work? The answer is all in the logistics: How does the government decide how much Medicare money is given to each individual? Are people who rely on Medicare capable of thinking critically about their own needs and health? Does the program have the potential to leave some Medicare users without enough coverage?

These are all important questions, which won’t truly be answered until Congress settles on a course of action. But it seems likely that, no matter how the government tries to cut and save, Medicare is likely to take a big hit. The only other single government expenditures that rivals healthcare spending is Defense, and until we extricate ourselves from the Middle East on a large scale, it seems highly unlikely there will be any cuts in defense spending.

More from The Cheat Sheet