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APRIL 29, 2011 12:27PM

Ripping apart Ryan’s budget Plan 1000 deaths at the time…

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Paul Ryan’s “Roadmap for America’s Future” fiscal Plan has been creating a lot of controversy (see Steve Klingaman’s piece for example) with its proposal to significantly cut (gut?) government spending by more than $62 trillion over the next 10 years (while still maintaining one of the lowest tax rates among all industrialized countries!). As expected, the cuts are primarily focused at national social programs, such as Medicare, Medicaid and Social Security.

The Plan proposes to significantly change the Medicare program, which would be completely dismantled by the year 2022 and replaced by the useless personal health care accounts or more specifically Medical Savings Accounts (MSAs), as they are known in the Plan. Remember those? I already talked about them two years ago. Between now and then, Ryan still recommends important modifications to the program with budget cuts equal to about $650 billion. As discussed by the Congressional Budget Office, which reviewed the Plan (via Paul Krugman’s column): “Some higher-income enrollees would pay higher premiums, and some program payments would be reduced.

There is no way around it: the budget cuts will affect the medical coverage of eligible people.

One very critical discussion point that is missing from Ryan’s Plan (or any other plans put forward by various people for that matter) is related to the negative societal costs associated with potential budget cuts for government programs. It’s always very easy for politicians to suggest financial restraints, but cutbacks to programs can also have significant adverse economic effects. A while back, I have explained that one always needs to include the societal costs when economic analyses are conducted for evaluating different governmental programs. These societal costs actually help for calculating benefits and determining which program is the most cost effective either for being funded or unfunded. I provided an example in a previous post.

I’m sure very few people are aware that a preventable death is estimated to be about $4.3 million (for an average person). This amount, which is based on the concept of willingness-to-pay (or comprehensive cost), includes direct costs and the costs linked to “the value of lost quality of life” a person would be willing to pay in order not to ‘expire’ (so to speak). I’ll leave aside the details about how these costs are calculated for now, since they can be quite complex to explain. It should be pointed out that $4.3 million may appear to be substantially large, but this value is actually located at the lower end of estimated values on this topic. People who work in medicine, for instance, have used larger values ($5 to $10 million is not uncommon). You know, dying from cancer is much more painful than a relatively ‘quick’ death resulting from a car crash; hence, more costly…

Why am I discussing how much is a life of a person worth?

Well, with budget cuts to Medicare, it is anticipated that people’s health will be affected. In fact, some people, who would have lived longer under the current system, may ‘go belly up’ prematurely under the proposed Plan since they may no longer get the medical care they need (a reasonable assumption). For those who believe that this is pure fantasy, I recommend that you read the following publication which discusses how Americans who become insured under Medicare, after turning 65, improve their overall health status:

Decker, S.L., Remler, D.K. (2004) How much might universal health insurance reduce socioeconomic disparities in health? A comparison of the US and Canada. Applied Health Economics and Health Policy, 3 (4), pp. 205-216.

Let’s perform a short exercise, as I have done in the past. I know some of you have missed these exercises.

Utilizing data from the U.S. Census Bureau, it is estimated that there will be 492 million people above 65 years of age between 2012 and 2021 (from 42.6 million in 2012 to 56.6 million in 2021). Now, let’s assume that the budget cuts over the next 10 years will create an increase in the number of premature or preventable deaths equal to 0.1% of the population above 65. Using these values, it can be shown (see the appendix below) that the economic costs associated with the number of preventable deaths are equal to $2.1 trillion! In other words, the benefit-cost ratio between the lives lost and the cuts to the program is equal to 0.307. In essence, this means that Ryan’s Plan is not a viable option compared to the do-nothing alternative (that is, the current version of Medicare). In this short example, I didn't adjust for the inflation and interest rates nor did I include the societal costs associated with people who do not die, but become permanently disabled via sickness or injury and dependent on the state for medical services.

Even if we reduce the societal costs by half, with the assumption that the value of life for an ‘older person’ is worth less than the life of a younger human being (an unethical methodology), or cut the death rate by two (0.05%), the societal costs are still much higher than the “anticipated” savings by a factor of 1.62. Interestingly, in order for the Medicare cuts to balance out, the death rate needs to be equal to about 0.031%. In the field of economics, a project that has a benefit-cost ratio equal to 1 would not be selected. Often, decision-makers will ask for a ratio above 5 or 10 before they consider a project doable.

With so many people who currently pass away annually due to the lack of access to medical insurance thanks to the current U.S. health care system, it’s not hard to imagine how many more people will die prematurely 10 years from now when Medicare is completely destroyed (if the Ryan’s Plan is enacted)…

Appendix A

figure 1 


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It is strange that Ryan would want to effectively end Medicare while claiming it's all about fiscal sanity. The truth is it's all about who gets their paws on what money is available from the ever-shrinking consumer/citizen. Ryan wants to hand it to thieves, sane people know they can do a better job taking care of themselves.

Now we can add the totals from your body count to the CBO numbers that show Ryan's plan is actually a 30 trillion dollar robbery for a far less effective system.

Of course, as Chris will explain, it's only money if it's a tax.
Paul: Yep! I agree. This whole thing is crazy!
I think the Republican analysis would substitute $0 for many of the $4.3 million's you mention since many people are unprepared to pay even $4.3 thousand to save their own lives, and the number prepared to pay even $43 thousand is probably small already. Which underscores the point that they are viewing this as an exercise in benefit to society, not to the individual. The problem there is that it's a feedback loop, since you can trivially solve that problem by saying “if only we lower wages enough, no one will be able to afford to buy health care and moreover if we bought them health care and they survived, the total value of their service to society would approach zero (or whatever the absolute minimum wage was).”

I don't like the Republican theory of valuation, but I wanted to point out that I don't think it's that their numbers don't add up, it's more that they aren't being forthcoming about what they're really valuing and what they're really hoping the new social order they want to create would look like.

I had more to say here but I saved it for a blog post sometime. Sorry I've not been blogging much. But I am still planning to.
Kent: Very good point! In my view, for many Republicans (I don't want to include everybody here), a premature death would be considered a benefit (less than $0?) (since this eliminates the probability that person could become a freeloader). Interestingly, some of the methods used to estimate the value of life show that the very young and very old who die prematurely benefits the society. Obviously, these methods are never used in practice. Looking forward for your next post.
Right. An excellent review of some of the more actuarial elements of the proposal. There are many analogues to the Ryan health insurance plan by which people underestimate costs, underfund insurance plans to save immediate cash, ignore their odds of illness and otherwise make bad choices. That means that even if appropriate insurance options were available at a somewhat reasonable cost, say, 40% above the Ryan reimbursement rate, it is highly likely that only the wealthy would pay the freight, while retirees or senior working poor would buy inadequate plans, and then arrive, unfunded, at emergency room doors while they are at death's door.
Steve: Yes, this is an excellent point. I'm certain that many older people would avoid seeking medical help in order to save money (from their MSAs). This is what we currently observe with people below 65 who are uninsured or underinsured. By removing Medicare, the same behavior will unfortunately be seen among the population that is in most need of getting access to adequate health care.

I’m surprised that Ryan did not offer the same deal for people (personal accounts) in the armed forces. I’m sure you remember my post on this topic….
Oops: "...most need for getting..."
I haven't read the entire Roadmap, but I have seen many problems in what I have read. The Roadmap acknowledges that many nations around the world provide adequate health care for far less per capita cost than what we have in the U.S. But rather than recommending adoption of these functioning, lower-cost systems, the Roadmap recommends a "free market" approach that is not used in these other countries, and is largely untried here.

But as I see it, the basic problem with the Roadmap is that you can't control health care costs by cutting back on how much the government pays for Medicare and Medicaid. The only way to control health care costs is by changing the system so as to take cost out of the system. This can be done in several ways:

1) Around 30 percent of health care costs are related to billing and reimbursement activities on both sides -- medical providers and insurance companies. A single hospital can generate millions of billing transactions a year, both manually and through expensive automated systems. Patient billing systems cost millions of dollars, and a patient billing office can employ a hundred or more people. On the other side insurance companies have similar systems and armies of workers. Billing and reimbursement are both non-value-added activities, and the goal should be to minimize those as much as possible.

2) Hospitals often have an unnecessary duplication of services. Everyone wants to have their own transplant programs, their own MRI, their own lab, etc, etc. for the purpose of having a "prestigious" facility. Duplicating services and programs without sufficient demand to justify them only adds unnecessary cost to the system. Statewide regulation of health facilities can help to reduce this.

3) Contract for lower pharmaceutical costs. Other countries do it, so why can't we too?

I haven't seen anything in the Roadmap that addresses health costs by changing the system of health care. It's mostly about manipulating the cost of health insurance and and transferring risk from the government to the patient, neither of which will reduce health costs.
Mishima666: Me too, I’m very puzzled as to why would the GOP, the Democrats or anyone else would just look at other industrialized countries and see what does or doesn’t work, and what could be used here and perhaps improve on it to make health care delivery even better. I remember writing a similar comment either here, at Salon or somewhere else.

Indeed, keeping the same structure (i.e., hospital’s administration methods, hospital and insurance overhead costs, etc.) as you indicated will lead to no costs saving at all. Furthermore, reducing the risk pool by allowing everyone to opt out will just make things worse. All other countries have understood that by including everyone in the same risk pool, you can better manage risk, hence lowering costs.
Mr. O'Rouke's suggesstion that "sane people know they can do a better job taking care of themselves" is self evidently absurd. Sane or otherwise, they're not ALLOWED to by our elected so-called leaders. The 'People' have nothing to do with Medicare/Medicaid, which are nothing but cozy mercantile relationships between lobbyists and Federal legislators. Mr. O'Rourke and others here believe that the mobocracy--boobocracy--can somehow find its own way. It cannot. Neither can the so-called leaders in Congress, who do not work for the people. The answer here seems to be: Tax more, to better distribute benefits. Does anyone really believe that those tax dollars would find their way to those who need them? Rep. Ryan simply wants to cut out the middle man...Congress. Many here seem to believe--hope--that Congress will do the right thing. It will not. In fact, it will do nothing.
This is utter rubbish and fear mongering. I'll answer the question you posed in you title when you answer this one: When MediCare takes up 100% of the GDP like it will down the road and they have to cut out the program ENTIRELY then how many people will die? Or maybe sine we won't have any money left to pay for MediCare then we should just stop Social Security. How many will that kill. Stop the demagoguery and realize that if there isn't some kind of cuts or reforms made to our entitlement programs now then it will have to be ended completely in the future.

Thankfully Seniors aren't stupid enough to fall for this tripe:

A new Gallup/USA Today poll contains a counter-intuitive finding: the age group most receptive to House Budget Chair Paul Ryan's plan to deal with the budget - seniors.

The poll finds 48 percent of seniors (those 65 and over) support Ryan's plan over President Obama's plan, while 42 percent back the president.

That's the highest total among the age groups tested - a 47 percent plurality between the ages of 50 and 64 backed Ryan, and a 45 percent plurality of those between 30-49 backed Ryan. But young voters overwhelmingly sided with Obama by a 23-point margin, 53 to 30 percent.
DJohn writes: "A new Gallup/USA Today poll . . . . "

Rather than polls, we should consider financial facts. In 2007 many countries in Europe had health care costs that ranged from around 7 percent to 10 percent of GDP. (Canada also was around 10 percent.) U.S. health care costs were 15 percent of GDP. These same countries had life expectancies greater than the U.S. and infant mortality rates less than the U.S.

Stated differently, these other countries have already figured out how to achieve good health with less cost. And they do it with what many conservatives would call "socialized medicine." They don't have perfect systems, but they have systems that work and that are affordable. And they DON'T

We don't need a Republican "roadmap," because the solution
As I was saying --

. . . because the solution is all around us in the many countries around the globe that have already figured this out.
If I can translate through your incoherence, it seems that you think the people is something different from their government. In many ways that is true, but not, obviously, on Medicare. Doing nothing on Medicare is better than doing something to Medicare, but that's just my easily supported opinion. Your comment is garbled Rwing hyperventilating clap-trap and makes no sense, but hits a few buzzwords and trite themes.
Of course, I was speaking of sane people, and you speak for the other side. So we have balance, but hardly a fair fight. Do you have a big brother?
Actually, when you are talking about senior citizens, to use a purely economic approach, it's not clear that prolonging the lives of the elderly is saving money. Don't forget that having seniors die earlier might save Social Security.

If you object to the heartlessness of my comment, that merely proves that monetizing the value of human life and calculating economic benefits or losses with one approach or another is a completely useless metric for determining what is right or wrong, good policy or bad.

(This doesn't mean I think Ryan's plan has any merit. He seems clueless about the healthcare industry.)
You read polls as well as you do anything. If you read the Gallup poll, those seniors weren't asked about Medicare or Soc Sec, or entitlements. So, while you set up that premise with your first paragraph, even the way you phrase the question doesn't ask about either, or any social spending. It simply asks which budget plan is preferred. If you'll read the comment after the poll, you'll see those senior numbers track Obama's approval-numbers-by-age. The poll is more about who you like than what you think. In other words, it's not costing Obama any voters.

When all were asked what worried them about the Republican plan -- Ryan's -- they said
"Cutting Medicare too much" @66%
and "cutting Soc Sec too much"@ 65%.
Those numbers don't leave room for you wishful thought of 48% of seniors wanting to cut Medicare and Soc Sec.


Then this recent McClatchy poll, where 80% are against cutting Medicare...but only 70% of Tea Partiers are against it, and only 68% of Republicans are.
Those Cut-My-Medicare seniors are disappearing fast, DJohn...

64% supported raising taxes on the top end. I threw that in just to remind you that Americans are mostly socialist devils.


mishima makes the relevant point. What are you after? The most efficient health care system we can have, or salve for your ideology?
What part of medicare costs are unsustainable do we need get? Medicare must be changed. First of all, the fraud and abuse needs to be addressed which hasn't been done.

Paul Ryan's plan is exactly what this country needs.
Correction: "what part of medicare is unsustainable do we NOT get?"
TheBadScot writes “Does anyone really believe that those tax dollars would find their way to those who need them?”. You should ask people above 65 and see what they say. I know two people who just turned 65 and are alive because of Medicare. In one of the two cases, she was very lucky since she sent her application just before her heart failed. In the end, she had a life-threatening infection, open heart surgery (which had to be postponed several times because of the infection located in her heart), and spend three months in the ICU at two different hospitals (transferred via AirMedic). Do you think an MSA with $7,000, as proposed in 10 years, would cover the costs of her hospitalization?

DJohn: First, I’ll repost the title here “Ripping apart Ryan’s budget Plan 1000 deaths at the time…”, which does not look like a question to me. Second, this is reality, not fear mongering. Polls don’t matter, since almost everyone hasn’t even read the plans, even less understand what’s in them. This includes you apparently. To get the true opinions of older people on this subject (and at the same time obtain an estimate of their value of life), we should ask them questions such as “How much would you be willing to pay if you knew that you could get stricken by a certain cancer and die in a painful death because preventive screening procedures would not be obtainable under Plan X?” One method to estimate the value of life uses these kinds of questions. I'll leave further explanations for another time. I think Mishima provided an excellent response to your comment.
Mishima: Thanks for the excellent response. The changes you proposed yesterday (e.g., billing methods that employ hundreds of people at hospitals and multiple insurance companies, etc.), as well as using the entire population as a single risk pool (either for the entire US or for each state), would greatly reduce health care costs to the level of those observed in other industrialized countries.

Paul: Thanks for responding to ‘the Scot’ and DJohn. You’re always the voice of reason.

Malusinka: You raise a good point, but this is a choice that each society needs to make. Unfortunately, whether the topic deals with infants or elderly people and economic programs, we need to put a value on people's lives. I work (and teach) with that stuff on a regular basis. For instance, if the government needs to invest limited funds on different medical treatments that can save baby’s lives, but each treatment has different costs and risks of survival, we need to know the value of a life saved in order to select which treatment should be selected (or none if the b/c ratio is below 1 or not good enough).

I’ll see if I can find a link to the health care system in the UK, which uses the value of life I described above for evaluating the cost effectiveness of medical treatments. They actually used crash costs for this evaluation and I believe they put the value for a preventable death to $2 or $3 million (US). In addition, they use the same value for everybody, including seniors.

crystalclear writes “Paul Ryan's plan is exactly what this country needs.” No, it’s the exact opposite actually.
So many things in the Roadmap don't make sense to me. For example:

" . . . every American (except those enrolled in Medicare or a military health plan) will have the option to receive a refundable tax credit – $2,300 for individuals and $5,700 for families – to pay for health coverage. The tax credit is available solely for the purchase of health care. "

My wife and I pay for our own insurance. She is younger than I and her monthly premium is around $350. My premium is $750 a month. So we pay $13,200 a year for health insurance. But for us the Roadmap would provide only $5,700 per year. So that would leave us with $7,500 to pay out of pocket.

In addition, we each pay a $500 deductible before insurance pays anything at all. After that there is a $1,500 maximum out of pocket. So in addition to the $7,500 for premiums, we would pay up to an additional $4,000 out of pocket, for a total of $11,500.

But wait, there's more! Drugs are handled separately and not included in the maximum out of pocket. So that could easily be another $200 a month for a family. At least it is for us. So that is another $2,400 a year, for a grand total of $13,900.

This is the amount that we would pay every year even with the assistance of the Roadmap funds. The Roadmap is quite clear about this:

"Alternatively, those who choose to purchase policies with premiums higher than the credit will assume responsibility for the additional amount themselves. This will encourage individuals to shop for policies best suited to their needs, at the best prices; and as a result, every American will play a role in restraining health insurance premiums, and enhancing the quality of health care services."

The problem is that, under the current system, what we pay is what decent insurance costs. I can't imagine what kind of plan we would end up with for $5,700 a year for both of us. We'd probably be eaten alive with additional out of pocket expenses.

The Roadmap notes that "No one should face bankruptcy because of a catastrophic illness." But it does little to keep people from going bankrupt from routine illnesses. Imagine someone on unemployment trying to pay thousands of dollars in medical bills and insurance premiums. The Roadmap would do little for him.

But that's not a problem for Ryan and his supporters. Just pull a number out of the air, tell people "this is what you get," and then it's Miller Time. And if hundreds of thousands of people go broke, too bad for them.
Mishima: Your example is extremely enlightening and shows exactly the main problem with Paul Ryan’s Plan. Thanks also for sharing the quote below:

" . . . every American (except those enrolled in Medicare or a military health plan) will have the option to receive a refundable tax credit – $2,300 for individuals and $5,700 for families – to pay for health coverage. The tax credit is available solely for the purchase of health care. "

For me, it comes down to this:

If the tax credit is good enough for us, it should be good enough for the military personnel, right? Thus, why do the people who are members of the Armed Forces (including the civilians who work for the tree branches of the military) are part of a single-payer system known as the MHS? Why can't the government offer the same ‘deal’ for the rest of the population? And yes, I already discussed this point here (for everyone else, Mishima666 already read this one):

Without health care, the U.S. will lose the perpetual war
Ryan is giving Obama exactly what he said he wanted.

Who can forget in June 2009 when Jane Sturm asked about her mother and a pacemaker. The president told us "...Maybe you’re better off, uhh, not having the surgery, but, uhh, taking the painkiller.”

He told us all what he thinks. He is not using a $4 million dollars value on life. No social valuation expressed here. He thinks you should take the painkiller and die. Where did he address the value of a human life? Nope, don't have the surgery, it's so expensive. You're to old. Your life is not worth living. We can't make subjective valuations on life. Just take the painkiller and be glad you have it.

Ryan's bill. Just the prescription the president ordered.
Under traditional accounting for GNP, all those premature deaths contribute to the economy with emergency room visits, funerals, etc. No doubt this is what Rep. Ryan was thinking when he said that his proposal would improve the economy.
Catnlion: As I wrote in the piece, very few politicians think about the societal costs. The question is still related to which plan is the most cost effective (when programs are unfunded).

ONL: Good one! I’m sure for many, a premature death is a benefit since there will more money for the rest of the population later on in life (if Medicare still exists). The fact that the society invested in these people by paying for their education (high school, university, grad school, etc.) or technical training in vocational schools be damned (as an example).
I think this is an excellent article. Very well researched. No one can argue with the figures, except republicans who do not go by the figures. They go by passion. Like their love for Ronald Reagan and his Trickle Down mess. Look at the morons who vote for these people. They cannot even comprehend this post. They use the "Shiny Object" offense. Talk about gay marriage, abortion, and now even Planned Parenthood. God help us all!

Except for those here who can't now, or will never be able to, take care of themselves I don't know that the federal government is, or should be, responsible for the societal costs of things. Those are costs that should be left to the states, private groups and families.
Fine. Do heed the warning. Look at what is happening in Europe right now with the austerity riots. At some point the US government will be forced to CHOOSE what programs they can keep and what they need to do away with. When that day comes we will remember this conversation. The retiring Baby Boomers will strain this system beyond what it can take and at some point it will break. It's not a matter of IF it is going to happen but WHEN.

Sadly, I see the idiots in our government playing politics with this issue for many more years and doing nothing until it is forced upon them. I can just hear the announcement now: "Due to the unsustainable debt that we are now facing and rising costs of entitlements we are now forced to eliminate one of three programs: MediCare, MedicAid or Social Security." "We know that this is going to adversely affect millions of our fellow citizens but we simply cannot pay for all of these entitlements anymore."

The next President of the United States, whomever that may be, will most likely need to make that announcement to the America People. If you are a member of the Baby Boomers generation you should prepare yourselves for this now.
Creepy. And accurate.

Let's not forget to take in the "negative societal costs" that result from paying for these programs and continuing to stay in debt to do it. Especially when, and I know this point is very difficult to grasp, people have the ability to take care of themselves! Maybe you all need to quit whining that someone else needs to pay YOUR bills and wipe your butt. Personal responsibility stares you all in the face. It's just so much easier to blame someone else, especially someone rich who actually worked for it and has taken that responsibility.
Real name for the Baby Boomers...Greatest Generation of Whiners Ever! It's amazing any of you made it past puberty. What a bunch of spoiled sissies who dare to think someone else should pay more to pay for them. Pay for yourselves and shut up!
Thanks for all the comments.

Just to be clear: societal costs are not dependent upon whether projects are funded by governmental or private entities. They are needed when projects or programs affect the entire society regardless of the where the funds come from. Furthermore, the selection process must be based on an economic appraisal or analysis (as set forth by the various plans to reduce the national debt).

As an example, if a state government can only invests say $100 million to make improvements to its highway or transportation network, which includes hundred thousands of miles, the societal costs will play a role about where the funds should be spent in order to get ‘the bigger bang for the buck’ (that is, the largest reduction in the number and severity of crashes for the money spent). Quite often state transportation agencies can only fund a limited number of projects every year. These safety projects influence the entire society, which explains why societal costs are used. You can see examples of how such programs work here:




Finally, personal responsibility won’t save us, even if we assume negative societal costs. This is all a myth I already discussed here in the context of health care reform two years ago:

Advocating personal responsibility in health: Bullshit!
Right, it won't save us one bit...just keep on smoking, not working out, eating horribly, overspending so you can complain about how much doctor visits costs...amazing how there's still always $ for tobacco and McDonald's and cable and on and on and on...that's the real BS.

And there is a societal cost because we can't afford any of it! We only want to tax the rich and make them pay. So the societal cost comes from all the extra interest we have to pay for programs that don't need to be funded at all if people simply cared for themselves. Pay your OWN bills. Fund your OWN retirement. Don't like gas companies making billions? Buy the stock you idiots! Don't like big Wall Street financial firms making billions? Does it need to be spelled about again? But no, instead you waste your money, overspending for things you don't really need, and whine how someone else should pay for you instead.
CJ writes “Right, it won't save us one bit...just keep on smoking, not working out, eating horribly, overspending so you can complain about how much doctor visits costs...amazing how there's still always $ for tobacco and McDonald's and cable and on and on and on...that's the real BS.

Right indeed… Look at real data and you’ll see that quite a different picture emerges. As described above, I assume that when people turn 65 they all see the Light above and decide to eat more vegetables and start exercising. This explains why older people on average are better health after 65… If I have the time, I may add more studies (rather than opinions) that show how personal responsibility is not the answer to the health problems in the U.S. In the mean time, I have an interesting article about following bad ideologies:

GMs Healthcare Double Standard
Bad ideology trumps good business
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