NCPA - National Center for Policy Analysis


July 6, 2009

Much of the health care reform debate centers on the Democratic push to create a government-run insurance option for working age Americans and their families.  But shouldn't policymakers take a hard look at Medicare -- the largest health insurance program in the country -- before moving ahead to create something similar for everyone else, ask Roy Ramthun and James Capretta, former health care advisors to President George W. Bush?

Medicare, the federal health program for the elderly and disabled has strong public support, and for good reason, say Ramthun and Capretta.  Medicare provides seniors with reliable health insurance.

But that does not mean the dominant Medicare model -- fee-for-service insurance, circa 1965 -- is working well and should be replicated elsewhere.  The primary problem in health care is costly, inefficient arrangements for medical care.  Medicare's fee-for-service insurance is the support structure for this expensive status quo.  For example:

  • Fee-for-service insurance allows enrollees to see any licensed service provider, with no questions asked.
  • Its substantial cost-sharing is mostly ineffective in discouraging utilization because some 90 percent of the enrollees carry supplemental coverage that pays for what Medicare does not.
  • Volume is Medicare's Achilles' heel; according to the Congressional Budget Office (CBO), the real price Medicare paid for physician fees dropped between 1997 and 2005 by nearly 5 percent, but total spending rose 35 percent because of rising use and more intensive treatment per condition.

Employers have been trying for years to move away from the fee-for-service payment system and toward higher quality, lower-cost networks of providers.  They are well ahead of the federal government in their disease management and wellness efforts, say Ramthun and Capretta.

But employers can only do so much when Medicare -- the dominant payer in most markets -- pushes in the opposite direction.  Because Medicare will finance unlimited use and pay any licensed provider, many individual doctors and hospitals see no reason to give up their autonomy, which means care is all too often delivered in a fragmented, disorganized and inefficient manner.  Many other types of providers -- such as laboratories, home health agencies and hospices -- survive as stand-alone operations because of Medicare's open network and provider-centric payment systems, say Ramthun and Capretta.

Source: Roy Ramthun and James Capretta, "When the Government Runs Health Insurance," Kaiser Health News, July 2, 2009.

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