 |
|
|
|
 |
 |
 |
NATIONAL CENTER FOR POLICY ANALYSISHOME / DONATE / ONE LEVEL UP / ABOUT NCPA / CONTACT US
| Medicare Reform and Prescription Drugs: Ten Principles | |
| |
|
There has been considerable debate over the past several years about whether Medicare should be a government program or a private program in which health plans compete in the marketplace. That this issue lingers is a bit of a surprise. As noted above, virtually all of the ways in which Medicare falls short of its private insurance counterparts stem from the fact that Medicare's features have been determined by politicians and not by firms that compete for business by pleasing their customers That adding prescription drug benefits is a contentious issue speaks to the limits of federally administered health programs. The private sector has been covering prescription drugs for decades with very little controversy. But political forces continue to block Medicare reform. Dollar for dollar, health plans designed in the marketplace almost always are superior to health plans designed by politicians. The reason flows from fundamental differences between political and economic competition. Like for-profit firms, politicians have to compete in order to survive. But the nature of that competition forces them to weigh political costs against political benefits - where costs and benefits are measured in terms of impact on the next election. Private firms competing in a marketplace, however, are forced to compare economic costs with economic benefits. And provided the rules of competition are structured properly, this means the firms are balancing social costs against social benefits. Under these circumstances, the inevitable tendency is to maximize the social value of any given outlay of money. In another context we have shown that extreme departure from the social optimum is almost inevitable when politicians allocate health care resources.37 The reason is that in a typical private plan a small percent of patients consume the vast majority of health care dollars.38 For example, about 5 percent of Medicare beneficiaries spend about half of all Medicare dollars.39 Politicians competing for office, however, will naturally resist spending so much of the health care budget on such a small number of patients - most of whom are probably too sick to vote anyway. Competition for votes is the underlying reason why politicians have designed a Medicare system that pays small medical bills that most seniors could pay on their own while leaving a tiny minority exposed to catastrophic expenses, including catastrophic drug expenses that very few seniors could pay. The small bills are incurred by the many, the large bills by the few. One reason the design of Medicare is not even worse is that private sector forces shape and mold the larger health care system of which Medicare is a part. In Britain, where virtually the entire health care system is subject to politics, the distortions are much worse. The British government denies its own citizens state-of-the-art cancer care and access to such technology as CAT scans and MRI scans - all the while spending billions on minor services for people who are only mildly ill or disabled.40 The upshot is that seniors fare better if they have access to health plans designed to compete in the private marketplace. This implies that our ultimate goal should be to enroll seniors in the same types of health plans as nonseniors. Indeed, there is no reason why seniors and nonseniors should not be in the same health plans. A health care plan connected to previous employment, for example, is one possibility. Many people who turn 65 and become eligible for Medicare have been retired for 10 or more years. Many others continue working for another 10 or more years. In either case, they might prefer to continue in the health plan they already know. |
|
| Previous | Next | |
12770 Coit Rd., Suite 800 - Dallas, TX 75251-1339 - 972/386-6272 - Fax 972/386-0924 601 Pennsylvania Avenue NW, Suite 900 South Building, Washington, DC 20004 - 202/220-3082 - Fax 202/220-3096 Copyright © 2002 National Center for Policy Analysis |