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Thursday, August 19, 2010

"For Cost Control, Vouchers and Medicare Don't Mix"

Are vouchers the key to controlling Medicare costs? Apparently not:

For Cost Control, Vouchers and Medicare Don't Mix, by Austin Frakt: With the ambition of reducing the federal debt, Congressman Paul Ryan has offered a proposal to convert Medicare to a voucher-based program. ... In principle, such a system could reduce federal Medicare costs... The history of Medicare and its politics suggest it is unlikely to work out that way.

About Ryan's plan, economist Paul Krugman wrote in the New York Times, "[W]e already know, from experience with the Medicare Advantage program, that a voucher system would have higher, not lower, costs than our current system." Krugman is correct...

What's going on? Why is the market-based Advantage voucher system not helping to control Medicare costs? The answer is that health care cost control is tough, technically and politically. ... By adding another private-sector layer to the program--health insurers--the Advantage program invites a third source of political pressure. Rent-seeking by providers and insurers, as well as the power of the beneficiary constituency, align in their encouragement of higher Advantage payments. Congress, apparently, is willing to yield to that encouragement.

So, it's really no surprise that Advantage plans have not, to date, been part of a Medicare cost control solution. Congress has not consistently been willing to say no to the combination of powerful interests that advocate for higher payments to private plans. Given the track record, it is also not unreasonable to conclude the mandatory voucher program Ryan advocates wouldn't save money either. As Krugman suggests, it could even be worse because in time 100% of beneficiaries would be enrolled in vouchers, not the 24 percent that are enrolled today.

The politics of Medicare are such that Ryan’s idea, paying for care entirely through private plans, costs more. That's not due to a market failure, but a political one. Congress likes to spend money; insurers, providers and beneficiaries like to receive it. Congress spends even more when it can satisfy those interests under the guise of a seemingly pro-market, pro-competitive program. ...

    Posted by on Thursday, August 19, 2010 at 01:22 PM in Economics, Health Care, Politics | Permalink  Comments (18)


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