That’s where the (Medicare) money goes!


Do average folk need to feel pain: As the cognoscenti know, one of the nation’s top happy hours is conducted right inside Baltimore’s Penn Station!

You can drink margaritas for $1 while watching people run for the train. And we do mean run!

Yesterday, we took some reading material along as we headed off to engage in this local folk tradition. Specifically, we took the Business Day section from the February 27 New York Times.

We wanted to read Eduardo Porter’s weekly Economic Scene column. On that day, his column bore this hard-copy headline: “No Need For Urgency In Fixing Medicare.”

We’d been tugging the column around for two weeks. Now we planned to read the whole thing—and we were glad we did!

Do average people need to feel pain if we reduce future Medicare spending? Consider the highlighted passage about Medicare spending in two well-known cities:
PORTER (2/27/13): Prodded by President Obama's Affordable Care Act, which offers providers a share of savings reaped by Medicare from any efficiency gains, many doctors are dropping the costly practice of charging a fee for each service regardless of its contribution to patients' health. Doctors are joining hundreds of so-called Accountable Care Organizations, which are paid to maintain patients in good health and are thus encouraged to seek the most effective treatments at the lowest possible cost.

This has kindled hope among some scholars that Medicare could achieve the needed savings just by cleaning out the health care system's waste.

Elliott Fisher, who directs Dartmouth's Atlas of Health Care, which tracks disparities in medical practices and outcomes across the country, pointed out that Medicare spending per person varies widely regardless of quality—from $7,734 a year in Minneapolis to $11,646 in Chicago—even after correcting for the different age, sex and race profiles of their populations.
We don’t know how you create a statistic like that. But according to Porter, there is an extra $4000 per person being spent on Medicare in Chicago, even after adjusting for demographics.

If we took back that $4000 per person, couldn’t we sharply reduce future costs without making average people feel pain? So a person might sensibly think, especially at happy hour.

Porter continued:
PORTER (continuing directly): He [Fisher] noted that if hospital stays by Medicare enrollees across the country fell to the length prevailing in Oregon and Washington, hospital use—one of the biggest drivers of costs—would fall by almost a third.

''Twenty to 30 percent of Medicare spending is pure waste,'' Dr. Fisher argues. ''The challenge of getting those savings is nontrivial. But those kinds of savings are not out of the question.''
If thirty percent of Medicare spending is “pure waste,” why was a telegenic child of the upper class appearing on network TV last Sunday, asking to hear people scream in pain as we reduce future Medicare spending? See our previous post!

At this point, we might add this note: Many liberals seem to be under the impression that Medicare is already quite cost effective. We have been scripted to advance this impression as we propose “Medicare for all.”

We need to become less scripted. Beyond that, we ought to push for more information about per person costs in this program.

On a per capita basis, how much does the U.S. spend on health care for seniors as opposed to other developed nations? We have never seen that figure. We don’t even know if the figure exists.

We do know this: Our public discourse is largely composed of short, pithy scripts. In one such script, telegenic children plucked from the finest schools go on TV and repeat elite claims about the need to hear people screaming in pain as we reduce health spending.

On TV, these discussions tend to last sixty seconds, just long enough for the scripts to be voiced. This represents the “imitation of public discussion” we have been talking about.

Final question: In our imitation discussions, have you ever heard anyone complain about the $4000 per person that disappears in Chicago each year? Why do you never hear that script voiced?

We can't answer your question.

Concerning yesterday’s happy hour: Concerning yesterday’s happy hour, we received a bonus. A group of roughly twenty young people were waiting, with substantial gear, to clamber aboard some train.

It was like the scene from Wild Strawberries! The scene where the aged professor picks up the lively young hitch-hikers!

Could they be waiting for the Crescent, we incomparably wondered. And sure enough! As it turned out, that was their train!

We don’t know where they disembarked. But the Crescent rolls, extremely slowly, all the way to New Orleans. If they stayed all the way to the end, they enjoyed some extremely colorful station stops. Or they will, by this afternoon.

Who wouldn’t want to take that train? The last six stations stops are these: Tuscaloosa, Meridian, Laurel, Hattiesburg, Picayune and Slidell.

People! At how many happy hours can you hear an announcer rattling those famous old names?


  1. On a per capita basis, how much does the U.S. spend on health care for seniors as opposed to other developed nations? We have never seen that figure. We don’t even know if the figure exists.

    Great point, Bob!

    My guess rregarding per capita health care spending is that the ratio of US to to other developed nations is higher for folks of Medicare age than for the general population. I base this guess on the amount of Medicare money I'm spending and the costly excellence of end-of-life care in this country. If this is so, then one of the main arguments for government health care was mistaken.

    For decades, the argument has been:

    A. Americans spends much more for health care than other developed nations.
    B. Other develoed nations have government health care.
    C. Therefore, if the US switches to government health care, our costs will go down to become more in line with other developed nations.

    However, this argument breaks down if the ratio of American to foreign health care costs is higher for the segment of US that's already on government health care. One would have to conclude that there are other reasons why American health care is more expensive. Enacting Obamacare won't automatically provide equally good care for less.

    1. "My guess is..." ...worthless, like most of your contributions.

    2. Quaker in a BasementMarch 16, 2013 at 7:36 PM

      And it's my guess that you have confused an effect for its cause. But if that's what it takes to support the order of the day, carry on.

    3. "However, this argument breaks down if the ratio of American to foreign health care costs is higher for the segment of US that's already on government health care."

      I'm sure that you'll share that data.

      Otherwise your conclusion is completely unfounded.

  2. If the US spends $7500 per person on health care and other comparable countries spend half as much, it is a reasonable hypothesis that there is waste in US health care; and it is also sort of reasonable to say that the solution to the high cost in the US is to eliminate waste. But the real question is how to do it? Do we keep the free-enterprise system that we have in the US (apart from Medicare and Medicaid) and try to reduce waste in as-yet-undetermined ways, or do we adopt one of the centralized systems - for example single-payer as in Canada - which have been proven to have lower costs?

    Bob seems to be arguing not only that there may be some magical ingredient in the US which just makes health care more expensive, but that we can identify that ingredient and correct it without even trying a centralized system. Whatever the small possibility is that he is right, this is certainly not the simple solution.

    Obamacare is something else - neither fish nor fowl. If it is not rejected entirely it may extend coverage to everyone, but will not reduce costs much or provide much information about how a really efficient system works (it is a horribly complex system).

  3. Medicare prices are not immune to the overall health-care market in the US. Medicare is not free to set prices completely arbitrarily - if it sets them too low with respect to the rest of the market, providers will just opt out and ignore that age bracket. So a direct comparison of Medicare-age costs with other countries is not valid.

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  5. I don't think Bob is arguing any of the things attributed to him above. He is merely pointing out that we're not even allowed to have the conversation. The scripts are so entrenched that we are limited to arguing whether ordinary Americans should be made to suffer substantial pain as social safety nets shrink or whether they should suffer excruciating pain.

  6. A brief time on the intertubes with the google finds that Medicare and Medicaid costs are usually lumped together. The 2012 figure is $555B. A little more digging finds that Medicaid costs are per the CBO $258B. A first order approximation takes the difference, $297B, and divides by the (approximate) number of people on Medicare, 50M, to get about $6K per geezer. But Medicaid also pays for long-term care for the indigent and their Medicare premiums, as well as the so-called disproportionate share costs for hospitals. Some of these payments go to the care of the elderly. So we may be underestimating by say, $80B, bringing us up to about $7.5K per geezer. This comports with the Atlas numbers.

    Now, according to the Canadian Institute for Healthcare Information, a private foundation that maintains healthcare databases, Canada spends about $10.7K per Canadian geezer in 2010. (Go here:

    I can't speak for others, but when I hear that Medicare is more efficient than private insurers, I assume that means that Medicare's administrative costs are lower. Which is true. At 2%, Medicare beats Medicare Advantage (11%), PPOs (7%), and HMOs (10%).

    I certainly agree with the conclusion from Anonymouse @ 12:38 about the value of DAinCA's contribution. But to be fair, let's actually count the ways in which it's worthless. 1. No one is proposing that the US switch to government health care, and the ACA won't be government health care. The ACA is about health insurance. 2. The "segment" of the American population that is on government health care (retirees and veterans) has higher health care costs compared to those of the general population and for the obvious reason. Enlarging the pool of insured to include a younger and healthier population should bring down the per capital costs no matter the comparison with other countries. 3. One doesn't have to conclude anything without logic and evidence. Or at least one shouldn't. 4. Nobody claims that the ACA (aka "Obamacare") will automatically provide good care for less money. Staying with the system we've got insures some level of care at more money.

    1. I am the Anon of 12:38, and while i appreciate your (accurate) rejoinder to David's blather, we shouldn't doubt for a second that it will be anything but ignored by the man himself, who lives to spill discredited libertarian platitudes here on Bob's blog.

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  8. deadrat -- I salute you for trying to measure the actual annual medical cost for US seniors. Unfortunately, that's a difficult thing to do, because the full cost of seniors' medical care is considerably larger than the government's cost of Medicare. To that figure one must add a number of other items, such as

    -- Payments made by seniors for Medicare Part B and Part D
    -- Deductibles that are not covered
    -- Procedures not covered, such as LASEK surgery
    -- Devices not covered, such as pneumatic compression devices for lymphedema
    -- Dentistry
    -- Optometrist, optician, eye-glasses, contact lenses, etc. (although eye doctors are covered for medical conditions)
    -- Prescription drugs, for those who don't purchase Part D.
    -- Prescription drug deductibles under Part D.
    -- Non-prescription drugs

    So, good try, deadrat. But the actual medical cost for seniors is probably quite a bit higher than the figure you calculated

    1. My full personal medical care cost can be approximated by adding to the part covered for free by Medicare my cost for Part B, Part D, Supplemental insurance, prescription drug deductibles, medical care deductibles, dental, optical, and and non-covered procedures. A back of the envelope calculation says that these add up to around $10,000 - $15,000 per year.

    2. David,

      My guess is all you need do to get a valid total is to multiply that amount by the number of people on Medicare.

      Check out Gary Kleck's method for estimating the number of Defensive Gun Uses in the US, then get back to us.

      PS. Subtract all those claims where injury was caused by alien abduction.

    3. I'm sympathetic, gravymeister, to your attitude that there are "Lies, damned lies, and statistics". As the joke goes, 47.3% of statistics are made up on the spot.

      However, there are questions that can only be answered by statistics. Unless God has come to you personally and told you the cost of medical care for the average US senior or the number of times guns are used for defensive purposes, there's no way to get a figure other than via numbers and statistics, fallible though they be.

      You evidently don't think much of Gary Kleck's study of defensive gun usage, although I don't know what your reasons are. The study is published in a top, peer-reviewed journal. A dozen other studies came out with estimates in his general area. He makes a good argument that one study that gives a much lower figure is flawed. Also, he explains that one particular criticism of his method is invalid. See


    In Table II.B1.—Medicare Data for Calendar Year 2011:
    Total expenditures were $549.1 billion and
    The total number of enrollees was 48.7 million.
    So 549,100,000,000/48,700,000 = $11,275

    Which really doesn’t sound right to me, because according to the National Health Expenditures 2011 Highlights (, per capita health care cost for the entire nation in 2011 was $8,680.

    Somebody check my math, please, I’m terrible at it.

    Carolyn Kay

  10. Your math looks good to me, Carolyn. As I pointed out above, the total medical cost for Medicare enrollees is considerably more than just the amount spent on them by Medicare.

    It makes sense that per capita medical cost is higher for Medicare enrollees, because:

    1. They're older or they're disabled. So, they tend to need more medical care.

    2. They may use more medical care than working people, because they have time and because it's covered. In particular, I would imagine that uninsured Americans who are near age 65 might put off expensive medical procedures until they reach the age where Medicare would pay.

    Offsetting these points is the fact that Medicare forces health care providers and drug stores to provide services and products at relatively low prices.

  11. It's a funny thing watching you leftist democrats try to do something to prevent the ultimate and unstoppable and complete austerity that is needed to save this country and your pet projects. Sure there is corruption everywhere in every Fed program but good luck trying to expose it and cut it. Why, you very bright Harvard educated pointy head liberals would be the first to yell racism...Racism...RACISM!! Then you further have the audacity to blame it on the worthless Republicans. The mountain of corruption multiplies 10 fold every day under Democrat rule.

  12. OK, fair point. The census finds that over the years 2007-2009, people between the ages of 65 and 74 spent on average $4.9K annually on health care.

    Go here:

    With the Medicare estimate that gives $12.4K/year/geezer.

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