Mr. Ryan, we’ll see you, and raise you $2 Trillion

Rep. Paul Ryan has gotten some very important things right.  First, $1 billion may be real money, but it’s nothing compared to our federal deficit.  We need to talk in terms of thousands of billions, i.e. trillions.  Second, we have to stop the hemorrhage from entitlements, or we will bleed to death.  Ryan suggests a switch to a defined contribution plan.
His plan for Medicare doesn’t start until 2021, by which time the patient may be dead.  Worse, the defined "contribution" of about $15,000 per beneficiary will go to a "health plan"-even though Ryan explains brilliantly that we got into our current mess because of third-party payments.

Why wait? And why not fix the major flaw, recognizing that benefits belong to the beneficiary, not to the middlemen?
Finding $2 Trillion. Since government accounting is so poor and loses track of billions of dollars, it’s hard to figure out just how much is being spent on Medicare. But it appears that Medicare spent about $500 billion in 2009, on roughly 50 million beneficiaries, or about $10,000 each. Some say nearly $12,000 is spent. But like Ryan and other lawmakers, let’s pick a number.
At $10,000 each, we’d get to $5 trillion in 10 years, plus something for an increase in the number of beneficiaries.  Ryan assumes we’ll spend $7.4 trillion between now and then. The difference would be about $2 trillion.
Putting Beneficiaries in Control of Their Money.  So here is a not-so-modest proposal: Let’s abolish Medicare altogether and instead put $10,000 per year into each beneficiary’s individually owned medical savings account: his or her $1,200 that used to go to Medicare Part B plus $8,800, tax free, from the Treasury.
Seniors could access the account via debit card to buy medical insurance or to pay out of pocket for any health-related expenditures. Accounts would be subject to IRS audit, and amounts spent for non-medical consumption would have to be returned to the government, with penalties.
In 10 years of good heath, more than $100,000 could accumulate (assuming that interest is paid), which should be enough to cover most medical events. Because the event could occur before the money accumulated, or because occasionally a much more expensive illness occurs, people are prudent to buy insurance. Prudent insurance is for catastrophes only-and is precisely the kind that Medicare does not offer.
If they wanted to, seniors could immediately hire their own middlemen to manage and share their windfall. Those friendly folk who answer the Medicare hotlines and shuffle the Medicare claims now could start their own business and compete for the honor of serving.
Savings Begin Instantly. The government would save all the Medicare-related expenditures hidden in other line items or departments-such as law enforcement. There might be fraudsters preying on seniors, but the potential jackpot would be much less if we didn’t have $500 billion a year flowing through a monstrous program with notoriously poor government accounting. The $100 billion to $200 billion that the government claims is siphoned off by waste, fraud, and abuse in the current system is not going to slip past the watchful eyes of seniors guarding their money.
Medical prices would drop, dramatically. Prices could drop because many costs would evaporate. Almost as much hospital personnel time is now devoted to Medicare compliance as to patient care. And prices would have to drop because patients would be unwilling to spend their own money on overpriced services.
The difference could be enormous. In 1980, a psychiatric hospital that took Medicare charged almost eight times as much as one that didn’t, while the latter had better care and far nicer surroundings. In 2011, a regular hospital charges five times as much for out-patient surgical procedures as an ambulatory center that accepts no Medicare.
Value-Based Purchasing. The difference between ObamaCare and this system is that the values would be the patient’s, not Donald Berwick’s. Patients could choose to spend their last dime on the chance of living another month. But there would probably be much less "futile" care, or highly expensive care of marginal value-especially if patients could pass along at least a portion of their unspent benefit, say for a grandchild’s education.
Past experience shows that medical expenditures always plummet when the patient is the one to benefit from the economizing. Yet valued services, such as doctors’ time for older patients, become available when people are not prevented from paying for them, as by Medicare’s price controls.
Just Two Questions. There’s the nagging little question of where the $8,800 would come from. All of it would have to be taken from working people, of whom there will only be two or three per retiree. (The trust fund is an accounting fiction, remember.) They might object to paying $2,500 to $4,000 per year for some retired person’s medical savings account. Isn’t such a forced transfer of wealth from one person to another unconstitutional?
Now there’s the big question. If it is unconstitutional to redistribute $5 trillion to retirees in this way, what about redistributing $7 trillion to middlemen, with some spent on retirees, as we do now, or as we might do through "premium support"?
People may like Medicare-retirees because they think they paid for it and are getting a good return, and workers because they think they are pre-funding their own care. But the truth is that the retirees were robbed while they were working, and the workers are being robbed now. The "social contract" is to tax the young to pay off earlier investors in what was a Ponzi scheme from the beginning.
The scheme will not continue as is because it can’t. Will we kill the old people, or impoverish the young, or do some combination of the two?  Or can we find a way to unwind the scheme so as to do the least damage? This thought experiment is meant to help reveal the questions that need to be confronted.


About the author:
Jane M. Orient, M.D.,  On Air contributor speaking on Healthcare Reform.  Dr. Orient has appeared onsomeof the largest TV and Radio Networks in the country and her op-eds have been printed in hundreds of local and national newspapers, magazines, internet, followed on major blogs and covered in the Wall Street Journal and The New York Times.

Doctor Orient is the Executive Director of Association of American Physicians and Surgeons and has been in solo practice of general internal medicine since 1981. She is a clinical lecturer in medicine at the University of Arizona College of Medicine. She received her undergraduate degrees in chemistry and mathematics from the University of Arizona, and her M.D. from Columbia University College of Physicians and Surgeons. She is the author of Sapira’s Art and Science of Bedside Diagnosis; the fourth edition has just been published by Lippincott, Williams & Wilkins. She also authored YOUR Doctor Is Not In: Healthy Skepticism about National Health Care, published by Crown. She is the executive director of the Association of American Physicians and Surgeons, a voice for patients’ and physicians’ independence since 1943. Complete curriculum vitae posted at Additional information on health-related issues: and