Preserving Medicare for future generations: Market-based approaches to reform

Article Highlights

  • The total amount of health expenditures associated with the elderly and disabled on Medicare in 2004 approached 40%

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  • Premium support dramatically alters the economic incentives that drive program spending rather than program value

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  • For so substantial a change, competitive bidding is remarkably well-tested and administratively modest

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America’s fee-for-service Medicare program represents the third-largest category of federal spending and has been under scrutiny for decades for spending more on health care benefits for enrollees than taxes can generate to pay for them. The nonpartisan Congressional Budget Office (CBO) estimates that over the next 10 years, the number of Medicare enrollees will increase by one-third—approaching 67 million Americans.

The CBO projects the cost of providing benefits to these enrollees will increase at an annual growth rate of 7 percent, reaching at least $1 trillion in fiscal year 2022. A combination of a higher volume of patients needing more care and the increasing costs of those services presents significant challenges for sustaining the Medicare program, particularly in an era of budget deficits.

The urgency of the situation may also offer a timely opportunity for reexamination of fee-for-service Medicare, including models that may support the overall goals of health system reform: better care and a healthier society at lower costs.

The Robert Wood Johnson Foundation asked scholars at the American Enterprise Institute to consider various approaches to reforming this "800-pound gorilla of American health care." The resulting series, “Preserving Medicare for future generations: market based approaches to reform,” includes three papers, each of which addresses a key question in Medicare reform.

1. Why reform Medicare?

In “The role of Medicare in inefficient health care delivery,” James C. Capretta explains how Medicare’s fee-for-service, no-cost-sharing structure has driven high spending not just in Medicare but in the health sector as a whole. Given the program’s influence on growth in health costs and health cost growth’s contribution to the federal deficit, Medicare should top the list of reform priorities.

2. How do we reform it?

In “Plan competition and consumer choice in Medicare: The case for premium support,” Joseph Antos outlines the main features of a premium support approach and discusses other reforms necessary to modernize traditional Medicare. Premium support, Antos explains, realigns incentives to promote quality of services over quantity and establishes an effectual cap on program spending, thereby curbing Medicare’s rising costs while maintaining seniors’ access to care.

3. How do we decide the level of premium support?

In “A competitive bidding approach to Medicare reform,” Roger Feldman, Bryan Dowd, and Robert Coulam argue that competitive bidding should help determine the amount of the government subsidy in a premium support system. Competitive bidding holds the promise of substantial cost savings while protecting the health care needs of beneficiaries.

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About the Author

 

Joseph
Antos
  • Joseph Antos is the Wilson H. Taylor Scholar in Health Care and Retirement Policy at the American Enterprise Institute (AEI), where his research focuses on the economics of health policy — including the Affordable Care Act, Medicare, the uninsured, and the overall reform of the health care system and its financing. He also studies the impact of health care expenditures on federal budget policy.

    Before joining AEI, Antos was assistant director for health and human resources at the Congressional Budget Office (CBO). He has also held senior positions in the US Department of Health and Human Services, the Office of Management and Budget, and the President’s Council of Economic Advisers. He recently completed a seven-year term as health adviser to CBO, and two terms as a commissioner of the Maryland Health Services Cost Review Commission. In 2013, he was also named adjunct associate professor of emergency medicine at George Washington University.

    Antos has a Ph.D. and an M.A. in economics from the University of Rochester and a B.A. in mathematics from Cornell University.



    Follow Joseph Antos on Twitter.

  • Phone: 202-862-5938
    Email: jantos@aei.org
  • Assistant Info

    Name: Neil McCray
    Phone: 2028625826
    Email: Neil.McCray@aei.org

 

James C.
Capretta
  • James Capretta has spent more than two decades studying American health care policy. As an associate director at the White House's Office of Management and Budget from 2001 to 2004, he was responsible for all health care, Social Security and welfare issues. Earlier, he served as a senior health policy analyst at the U.S. Senate Budget Committee and at the U.S. House Committee on Ways and Means. Capretta is also concurrently a Senior Fellow at the Ethics and Public Policy Center. At AEI, he will be researching how to replace the Patient Protection and Affordable Care Act (best known as Obamacare) with a less expensive reform plan to provide effective and secure health insurance for working-age Americans and their families.

  • Email: James.Capretta@aei.org
  • Assistant Info

    Name: Neil McCray
    Phone: 202-862-5826
    Email: Neil.McCray@aei.org

 

Roger
Feldman
  • American Enterprise Institute (AEI) adjunct scholar Roger Feldman is the Blue Cross Professor of Health Insurance and Professor of Economics at the University of Minnesota, where he specializes in applying economic theory to health services research. He is currently a member of the Congressional Budget Office’s Panel of Health Advisers and consults for various federal and state agencies on health care–related matters.

    Previously, he served on the senior staff of the President’s Council of Economic Advisers. From 1988 to 1992, he directed one of the four national research centers sponsored by the Centers for Medicare and Medicaid Services (CMS) and has advised CMS on the design of a demonstration of competitive bidding for Medicare health plans. At AEI, Feldman’s research focuses on Medicare reform, competition in health care, and health insurance markets.

    Feldman holds a Ph.D. in economics from the University of Rochester. He obtained an M.S. in economics at the London School of Economics, where he was a Marshall Scholar, and a B.S. from the University of Wisconsin-Madison.

  • Phone: (612) 624-5669
    Email: feldm002@umn.edu

 

Bryan E.
Dowd
  • American Enterprise Institute (AEI) adjunct scholar Bryan Dowd is the Mayo Professor of Public Health and the director of graduate programs in health services research and policy at the School of Public Health at the University of Minnesota. His work at AEI focuses on the economics of health care policy, Medicare reform, and health insurance markets.

    A health economist with a Ph.D. in public policy analysis from the University of Pennsylvania, Dowd also has an M.S. in urban administration from Georgia State and a B.A. in architecture from the Georgia Institute of Technology.

  • Phone: (612) 624-5468
    Email: dowdx001@umn.edu

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