A framework for U.S. medicare reform

Health care is the most serious domestic policy problem Americans have, and Medicare is the most important component of that problem. Every federal agency that has examined the issue has affirmed that we are on a dangerous, unsustainable spending path, says John C. Goodman, president of the National Center for Policy Analysis (NCPA).

There are three underlying reasons for this dilemma, says Goodman:

Since Medicare beneficiaries are participating in a use-it-or-lose-it system, patients can realise benefits only by consuming more care; they receive no personal benefit from consuming care prudently and they bear no personal cost if they are wasteful.

Since Medicare providers are trapped in a system in which they are paid predetermined fees for prescribed tasks, they have no financial incentives to improve outcomes, and physicians often receive less take-home pay if they provide low-cost, high-quality care.

Since Medicare is funded on a pay-as-you-go basis, many of today's taxpayers are not saving and investing to fund their own post-retirement care; thus, today's young workers will receive benefits only if future workers are willing to pay exorbitantly high tax rates.

To address these defects, three fundamental Medicare reforms need to occur, says Goodman:

Using a special type of Health Savings Account, beneficiaries would be able to manage at least one-fifth of their health care dollars (and up to 40 per cent under the "Intermediate Model") – thus keeping each dollar of wasteful spending they avoid and bearing the full cost of each dollar of waste they generate.

Physicians would be free to repackage and re-price their services – thus profiting from innovations that lower costs and raise the quality of care.

Workers (along with their employers) would save and invest 4 per cent of payroll – eventually reaching the point where each generation of retirees pays for the bulk of its own post-retirement medical care.

Source: John C. Goodman, A Framework for Medicare Reform, National Center for Policy Analysis, Study No. 315, September 15, 2008.

For text: http://www.ncpa.org/pub/st/st315/st315.pdf

For more on Health Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=16

FMF Policy Bulletin/ 23 September 2008