May 15, 2003
It is clear that Medicare is in need of reform. What can be done? For the short run, Andrew Rettenmaier and Thomas Saving recommend fundamental reform. Rather than spending more, they suggest better use of the dollars we are already spending.
- An integrated health insurance program should replace Medicare Part A, Medicare Part B and private medigap insurance.
- The new program should be comprehensive, offering catastrophic coverage and prescription drug benefits.
- Seniors should be able to enroll in any of a number of competing private health plans that offer these benefits, including HMOs and Medical Savings Account plans.
- With catastrophic coverage eliminating the need for medigap insurance, greater cost sharing and competition below the deductible will ensue.
A number of reform proposals would allow seniors who enroll in private plans to reselect a plan every 12 months. A long-term contract would be better, allowing seniors to switch plans only if they are unhappy with the plan they are in; a beneficiary's movement would prompt a severance payment from one plan to the other to compensate for any losses created by the move.
The principal advantage of long-term contracts is that they can remove the incentive for an insurer to avoid enrolling the sickest beneficiaries or to underserve them after enrollment.
- Over a 12-month period, the most costly enrollees are the sickest (often those near death).
- Over a longer period, say, for the remainder of the enrollees' lives, the most expensive enrollees are those who are healthiest at the time of enrollment.
In general, seniors of the same age cohort cost Medicare about the same near the end of their lives, regardless of the age at which they die. However, before their death, those who live the longest will tend to require the most Medicare dollars because they will have more years to consume benefits.
Source: Andrew J. Rettenmaier and Thomas R. Saving, "Reforming Medicare," Policy Report No. 261, May 15, 2003, National Center for Policy Analysis.
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