How Should Medicare Pay for Medical Care?


by John Goodman

Source: The Health Care Blog

There are basically five possibilities. To compare them, let:

S = each unit of service, or a package of services

P = the price of each unit of service, or the price of a package of services

Then the government can:

1. Dictate every service it will pay for and the price it will pay for each of them (fix S and P), leaving providers to compete only on amenities, including waiting times.

2. Dictate S, but leave providers free to compete on P, say, through a system of competitive bidding.

3. Dictate P, but leave providers free to compete on what S they will provide for that price.

4. Initially fix S and P, but leave providers free to opt out, substituting different bundles of S & P as long as government’s cost goes down and quality of care goes up.

5. Initially fix S and P, but allow patients to opt out, managing a portion of the funds directly and making their own purchasing decisions.

Alert readers will recognize (4) and (5) as NCPA solutions, (3) as the Rivlin-Ryan plan, and (1) as the status quo. But I’m getting ahead of the story.

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