There is no magic that can preserve Medicare as we know it today. As the baby boomers age and medical advancements spur costlier health services, this enormously popular program--which helps to pay the health care costs of 43 million seniors and disabled Americans--is headed for financial crisis. The tax burden that Medicare creates is on track to more than triple within the next three decades. Eventually, politicians will be forced to renege on Medicare's promise of virtually unlimited resources for health care. We must find a way to slow the rate of growth in taxpayer-financed funding for Medicare in order to make the program financially sustainable.
In Markets Without Magic: How Competition Might Save Medicare, Mark V. Pauly argues that unavoidable limits on Medicare financing can best be imposed through market-based choices rather than government direction. Policymakers face a fundamental challenge: how to preserve Medicare's ability to provide its beneficiaries with financial protection and access to effective medical care while securing the advantages of competition.
Pauly argues that a voucher system could provide full coverage for the poor, ensure that all seniors have access to a minimum level of coverage, and empower consumers to make decisions about their health care. Converting Medicare to vouchers would create a neutral Medicare market, set realistic limits on the growth in spending, promote efficiency, and give seniors the freedom to choose the plan most suitable for them at the quality level they prefer.
In the short run, bringing competition to Medicare will save money for beneficiaries and improve the quality of health care; in the long run, it may save Medicare.
Mark V. Pauly is the Bendheim Professor and professor of health care systems, business and public policy, insurance and risk management, and economics at the Wharton School of the University of Pennsylvania and an adjunct scholar at the American Enterprise Institute.