Reforming Medicare

Reforming Medicare: Options, Tradeoffs, and Opportunities

Henry J. Aaron
Jeanne M. Lambrew
with Patrick F. Healy
Copyright Date: 2008
Pages: 202
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  • Book Info
    Reforming Medicare
    Book Description:

    Everyone agrees on the need to reform Medicare but not on how to do it. Some argue the program is too comprehensive, others that it is not comprehensive enough. Some suggest it pays too much for health care, others, too little. Meanwhile, the financial stakes continue to mount. Medicare spending exceeded $400 billion in 2007, making it more expensive than the entire health systems of most other nations, as well as the largest national public program other than Social Security and national defense. In Reforming Medicare,Henry J. Aaron and Jeanne M. Lambrew deftly guide readers through this complex debate. They identify and analyze the three leading approaches to reform. Updated social insurance would retain the current system while rationalizing coverage and reducing bureaucracy. Premium support would replace the current system with a capped, per-person payment that beneficiaries could use to buy health insurance. Consumer-directed Medicare would have beneficiaries pay for care up to a high deductible from government- supported savings accounts and offer premium-support coverage above the deductible. In addition to rating each option on its ability to promote access to health care, improve the quality of care, and control costs, the authors evaluate each reform's political strengths and weaknesses. Given the heat generated by the Medicare debate, it is unlikely that any single approach will be implemented in full. Consequently, Aaron and Lambrew describe incremental strategies that blend elements of each plan. Their analysis provides essential insight into the types of hybrid policies that Congress will consider in coming years.

    eISBN: 978-0-8157-0150-7
    Subjects: Health Sciences, Political Science

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
  3. Foreword
    (pp. ix-xii)
    Richard C. Leone

    Some day, looking back, this period will be recalled as part of a great transformation in American life. The watershed represented by the aging of 76 million baby boomers will alter tastes in entertainment, transform our politics, and reshape the economy. Older people, after all, have quite different consumption preferences than the young. To be flip about it: they buy walkers instead of skateboards and dentures rather than braces. They also buy lots of health services—more all the time.

    The American way of providing health care is expensive, but it is innovative. It is unequal, but at the top...

  4. 1 Medicare Reform: The Stakes
    (pp. 1-11)

    Now in its fifth decade, Medicare provides health coverage to virtually all of the nation’s elderly and a large share of people with disabilities, a population of some 44 million. The program has brought large benefits.¹ With dramatically improved access to health care, its beneficiaries have enjoyed longer, healthier lives.² It contributed to the desegregation of southern hospitals. And it is one of the most popular government programs, rivaling Social Security.

    Despite Medicare’s achievements and popularity, the program has always been controversial. In the bitter partisan dispute preceding its enactment, Democrats supported mandatory, payroll-tax-financed hospital care while Republicans sought voluntary,...

  5. 2 A Medicare Primer
    (pp. 12-28)

    Since its enactment in 1965, Medicare has expanded from two to four components. The first offerings were Hospital Insurance (III, or Part A) and Supplementary Medical Insurance covering physicians and other selected services (SMI, or Part B).¹ In 1982 Congress added coverage of managed care plans (now named Medicare Advantage, or Part C). In 2003 it approved coverage of outpatient prescription drugs through privately administered insurance plans (Part D).

    The basic structure of Parts A and B has not changed since enactment. It remains a fee-for-service system that allows enrollees to select virtually any licensed provider and receive any covered...

  6. 3 Goals, Performance, and Options for Medicare
    (pp. 29-50)

    Medicare is hugely popular with both the public and policymakers. It provides nearly all people aged sixty-five or older and those with certain disabilities with health insurance that many would otherwise find costly or unavailable.¹ It covers most medical costs of its elderly enrollees. It offers beneficiaries more choice of providers than do most health plans serving workers and their dependents. In addition, Medicare is an important source of employment, providing billions of dollars in income to hospitals, doctors, home health agencies, nursing homes, drug companies and pharmacies, medical device manufacturers, and other providers in every congressional district.

    Notwithstanding its...

  7. 4 Strengthening Medicare as a Social Insurance Program
    (pp. 51-72)

    Medicare was originally designed as—and for the most part remains—asocial insuranceprogram. Social insurance provides collective protection against certain risks such as involuntary unemployment or loss of income because of retirement, disability, or death of a breadwinner.¹ Under Medicare, this protection consists of uniform coverage of the costs of participants’ health care regardless of their income or wealth and is financed largely from broadly based taxes. Medicare’s uniform benefit structure simplifies administration and avoids the stigma commonly associated with programs targeted to the poor.² Because this insurance is either free (Part A) or heavily subsidized (Part B),...

  8. 5 Premium Support
    (pp. 73-91)

    Beginning in the mid-1990s, policy analysts developed and some elected officials endorsed an alternative to traditional Medicare calledpremium support.¹ This term has since been applied to several proposals built around the principle that health care services should be financed by the government but managed by private insurance plans competing on premiums and services. The government would pay for a core set of services. This payment— or “capitation”—would be adjusted on the basis of enrollees’ characteristics to reflect differences in expected use of health care. The payment adjustments would reduce insurers’ incentives to “cherry-pick”—that is, to seek enrollees...

  9. 6 Consumer-Directed Medicare
    (pp. 92-114)

    Under consumer-directed health care, decisionmaking rests with individuals, not with the government (as in social insurance) or with health plans (as in premium support). People would pay for health care through accounts linked to high-deductible insurance plans. This reform springs from the concept of the “ownership society,” in which much of the responsibility for education, pensions, and health care would be shifted from the government to individuals.¹ In the case of education, for example, parents would send their children to schools they chose and pay tuition with vouchers the government gave them. People would finance their retirement from individually owned...

  10. 7 Assessing Medicare Reform Options and Prospects
    (pp. 115-138)

    Almost everyone agrees that Medicare needs to be improved, but not on how to do it.¹ Assessments of what is right and wrong with the program are numerous and conflicting. Some argue that the program is too comprehensive, others that it is not comprehensive enough. Some suggest it pays too much for health care, others too little.

    Despite these differences, most reform plans are variations on the three approaches described in chapters 4, 5, and 6. The first, updated social insurance, would allow Medicare to determine benefits and payment rates. The second, premium support, would give each beneficiary a fixed...

  11. Appendix A Payment Systems for Special Hospitals
    (pp. 139-139)
  12. Appendix B Pricing for Selected Outpatient Services
    (pp. 140-141)
  13. Appendix C Sustainable Growth Rate System
    (pp. 142-143)
  14. Appendix D Hospital Service Prices
    (pp. 144-148)
  15. Notes
    (pp. 149-194)
  16. Index
    (pp. 195-202)
  17. Back Matter
    (pp. 203-203)