Entitlement reform is a
major sticking point in fiscal cliff negotiations. Republican House Speaker
John Boehner has proposed cutting $900 billion in entitlement spending over the
next decade, and President Barack Obama’s plan doesn’t include entitlement
reform.
My colleague Rex Nutting wrote earlier this week that
“rushing into entitlement ‘reform’ would be particularly foolish,” although
America needs to keep health care costs down by changing the way doctors and
hospitals are paid, just as Obamacare is going to do.
Medicare is clearly unsustainable. Rather than
Obamacare, which is criticized for its system of rationing care, and paying
doctors on the basis of outcomes, we need to inject more choice into Medicare,
turning it into a system of competitive managed care.
Medicare is the toughest nut to crack. Social Security
trust fund deficits can be solved by gradually raising the retirement age for
future generations, means-testing benefits, and changing the growth path of
benefits from an index based on wage growth to one based on price growth.
As for Medicaid, several states, such as Indiana and
Rhode Island, have successfully reduced its growth through personal accounts
and competition.
But Medicare presents the most daunting challenges.
The Office of the Actuary of the Center for Medicare and Medicaid Services has
estimated that without the projected Medicare spending cuts under the
Affordable Care Act — cuts that may never, if history is any guide, occur —
Medicare expenditures as a percent of GDP would grow from 3.7% today to 7.7% in
2050, to 10% in 2080. With the cuts, Medicare spending would be 6.7% of GDP in
2080.
Despite its shaky financial future, Medicare has
become an easy target for politicians to plunder revenue for other purposes. On
Jan. 1, under the Affordable Care Act, Medicare taxes will rise on income and
capital, reducing incentives to work and to invest. Singles with earnings over
$200,000 and joint filers who earn more than $250,000 will see Medicare taxes
increase to 2.35% from 1.45%, and they will pay a new 3.8% tax on unearned
income.
These receipts won’t be used to shore up Medicare, but
will pay for subsidies for health insurance for those below 400 percent of the
poverty line. In addition, $500 billion over the next decade will be “saved”
from Medicare and spent on the new program. When Congress robs Peter to pay
Paul, Peter is often Medicare.
Meanwhile, Medicare reimbursements are lower than in
most insurance plans, and Medicare patients complain that many doctors refuse
to take them. In some areas, Medicare patients face shortages of doctors and
long waits for appointments.
A doctor in suburban Maryland told me that Medicare’s
reimbursement covers only a small fraction of his fee. With prospective cuts in
reimbursement rates, it will not be worth taking Medicare patients. In
addition, many private insurance companies calculate reimbursement rates from
Medicare’s rates, so these will decline also.
Plus, the doctor told me, if, following new Medicare
guidelines, he is paid on the outcome of his treatment, then his incentive is
to focus on healthy patients and exclude sick ones. Another measure is the number
of patients seen, but seeing more patients leaves him less time for existing
patients and their problems. If he should make a medical error caused by
rushing too many patients into one day, Medicare gives him no protection
against lawsuits.
A better way to combine fiscal responsibility with
health care reform is to empower seniors to choose from private plans competing
for their business. It works with the prescription drug benefit and it could
work for all of Medicare. Outside Medicare, competition has lowered prices for
Lasik eye surgery and cosmetic procedures.
One way to inject competition into Medicare is premium
support, an idea dating back to the 1997 National Bipartisan Commission on the
Future of Medicare, chaired by two retired members of Congress, Rep. Bill
Thomas (R-CA) and Senator John Breaux (D-LA).
Thomas and Breaux have retired from Congress, but the
Medicare Commission’s premium support idea is now found in the House 2013
budget. Read it here on page
96 of the Concurrent Resolution on the Budget Fiscal Year 2013.
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