Reforming Medicare
Conclusion
The United States, along with the rest of the developed world, is facing the retirement of the postwar baby boom generation. Sustaining our elderly entitlement programs into the future in their current forms will result in a significantly higher burden for our children and grandchildren. The Medicare program must prepare for both a rapidly growing retiree population and increasing costs per retiree. Only a reformed Medicare program will be able to cope.
One suggestion is to combine Parts A and B, add prescription drug coverage, and eliminate catastrophic coverage gaps. For those who prefer a fee-for-service alternative to managed care, we recommend raising the deductible and copays up to an out-of-pocket maximum, and allowing individuals to supplement their coverage with a Medical Savings Account.
"Long-term contracts and severance payments would give health plans incentives to accept the sickest patients."
Absent other reforms, these changes will not prevent increases in future taxpayer burdens. Another reform that many find attractive is to offer these benefits conditional on a beneficiary selecting from a menu of private insurance providers. The allure of this reform is that health plans would compete on price; but with uniform (community-rated) premiums and open enrollment, adverse selection and screening could be a serious problem. The continued advancements in risk adjusting prospective payments to Medicare + Choice providers holds promise in overcoming adverse selection problems. But as long as CMS continues to set the payments to insurers, this solution is far from perfect.
Long-term contracts with severance payments is a better way of overcoming screening on the part of insurers and other associated problems. The main benefit of long-term contracting is that it relieves CMS of its price-setting role. Although Medicare payments would continue to be set administratively, health plans would compensate each other for their losses when beneficiaries move from one plan to another. Health plans would have to compete on the amount of compensation they require to accept transfers. The plans would have to consider both longevity and health risks in setting compensation levels.
NOTE: Nothing written here should be construed as necessarily reflecting the views of the National Center for Policy Analysis or as an attempt to aid or hinder the passage of any bill before Congress.