NCPA - National Center for Policy Analysis

How Entrepreneurs Could Solve Medicare's Problems

January 31, 2013

Medicare faces growing problems of cost, access and quality. These problems exist because Medicare is structured in a way that eliminates or suppresses features of a normal market system. In order to truly reform Medicare, entrepreneurs must be free to innovate. True reform falls into four basic categories: freeing the patient, freeing the doctor, freeing the market and freeing the insurer, say John C. Goodman, president and CEO of the National Center for Policy Analysis, Greg Scandlen, founder of Consumers for Health Care Choice, and Devon Herrick, a senior fellow with the National Center for Policy Analysis.

  • Freeing the Patient. Instead of treating beneficiaries as passive recipients of government largess, it is time to treat them as partners in the enterprise. The first step to freeing the patient is to make individuals responsible for managing at least some of the money. They would benefit from prudent decisions and be penalized by bad ones.
  • Free the Doctor. There are many services providers would like to offer patients, but the current system of bureaucratic payments prohibits it, as Medicare has strict rules about how tasks can be combined and reimbursed. The solution should be that any Medicare provider is able to propose and obtain a different reimbursement arrangement, provided that: (1) the total cost to government does not increase, (2) patient quality of care does not decrease and (3) the doctor proposes a method of measuring and assuring that (1) and (2) have been satisfied.
  • Free the Market. Medical fees should be determined the way prices are determined everywhere else in the economy -- in the marketplace.
  • Free the Insurer. Insurers need to be given incentives to create specialized plans -- especially for chronic illnesses -- that compete with each other. An example can be seen in Medicare Advantage plans, which allow seniors to choose to receive their benefits from a private insurer.

The NCPA proposes to replace Medicare's current structure with a new simplified structure meant to mimic the health insurance benefits the rest of Americans enjoy.  A "Standard Comprehensive Plan" (SCP) would be the new "core" Medicare plan. It collapses all of the current archaic divisions of Part A, Part B and Part D into a single comprehensive program with an across-the-board $5,000 deductible. Beneficiaries would pay a premium equal to 15 percent of program costs. Current enrollees could stay where they are or could switch into the new plan, but all new enrollees would be in the SCP.

Future retirees would save for future health costs using individually-owned Health Insurance Retirement Accounts (HIRAs). Through these accounts current workers would partially prepay future Medicare costs and thereby reduce the projected tax burden on future workers.

With these reforms, projections based on an economic model show that Medicare will take little more of national income than it does today. By mid-century, savings would amount to an estimated $2.4 trillion annually compared to the status quo.

Source: John C. Goodman, Greg Scandlen and Devon Herrick, "How Entrepreneurs Could Solve Medicare's Problems," National Center for Policy Analysis, January 31, 2013.


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