Plan Would Put Medicare Beneficiaries in Charge of Reform

Chairman John Breaux of the National Bipartisan Commission on the Future of Medicare has proposed a reform plan that would leverage the powerful forces of market competition and consumer choice to save the program. The proposal that Senator Breaux (D-LA) and co-chairman Bill Thomas (R-CA) are offering would give beneficiaries financial assistance that they could use to purchase their own health coverage in the private marketplace or stay in traditional Medicare.

Medicare’s open-ended entitlement to covered services is unsustainable and will bankrupt the system when the influx of baby-boom beneficiaries hits, demanding even more medical services and technologies. Tax increases, as proposed by some on the commission, never could keep up and would be harmful to the economy. 

The solution is to radically restructure the program to put beneficiaries in charge of getting the best quality and services at the best price through the competitive marketplace; that means redefining Medicare in terms of a fixed dollar amount for each individual through “premium supports”, as the Breaux proposal would do.

The danger is that the government will revert to its natural and destructive tendency to micro-manage. The failure of Medical Savings Accounts and the retreat of companies from Medicare managed care prove that over-regulation suffocates the creative forces of the marketplace. Some commission members are lobbying for the government to provide highly detailed lists of the benefits that every Medicare beneficiary would be entitled to receive under the new premium support plan. This would be a mistake: It would severely restrict the ability of beneficiaries to select the type of plan that best meets their needs and would suffocate the creativity of health plans and insurers in offering a variety of products and services.

They key is to trust consumers and the marketplace. When beneficiaries are free to choose their own coverage, the market will provide more attractive options. Seniors looking out for their own interests and pocketbooks will spend $6,000 much more wisely then a federal bureaucrat, especially if they can reap the savings from purchasing a more cost-effective plan or obtain additional benefits. 

But that doesn’t mean they will sacrifice quality. Every day, people who have paid widely different prices for airline tickets sit side-by-side, yet both get the same safety and arrive at the same time. Many medical services would lend themselves to similar cost efficiencies. 

No one is expecting patients to decide on the most efficient treatment if they are wheeled on a stretcher into an emergency room. But they can make smart choices about the health plan and doctors they want to provide them with care in a crisis, just as millions of federal workers do every year during the Federal Employees Health Benefit Program’s open season.

Medicare commissioners are making decisions now about their final report, due March 1. Senator Breaux says he is close to getting the 11 votes he needs for his proposal to win approval. If his fellow commissioners endorse the plan, they would offer legislators a visionary and workable option to reform and save Medicare.

Instead of appeasing regulators and health police, doctors and health plans would be catering to consumers. Competition will facilitate continued innovation in products and service delivery. The result: taxpayers will be protected, consumers will get better value, and Medicare will become solvent. 



Grace-Marie Arnett is president of Galen Institute, a public policy research organization based in Alexandria, Virginia. She is the editor of Empowering Health Care Consumers through Tax Reform, published in 1999 by the University of Michigan Press.

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Chairman John Breaux of the National Bipartisan Commission on the Future of Medicare has proposed a reform plan that would leverage the powerful forces of market competition and consumer choice to save the program. The proposal that Senator Breaux (D-LA) and co-chairman Bill Thomas (R-CA) are offering would give beneficiaries financial assistance that they could use to purchase their own health coverage in the private marketplace or stay in traditional Medicare.

Medicare’s open-ended entitlement to covered services is unsustainable and will bankrupt the system when the influx of baby-boom beneficiaries hits, demanding even more medical services and technologies. Tax increases, as proposed by some on the commission, never could keep up and would be harmful to the economy. 

The solution is to radically restructure the program to put beneficiaries in charge of getting the best quality and services at the best price through the competitive marketplace; that means redefining Medicare in terms of a fixed dollar amount for each individual through “premium supports”, as the Breaux proposal would do.

The danger is that the government will revert to its natural and destructive tendency to micro-manage. The failure of Medical Savings Accounts and the retreat of companies from Medicare managed care prove that over-regulation suffocates the creative forces of the marketplace. Some commission members are lobbying for the government to provide highly detailed lists of the benefits that every Medicare beneficiary would be entitled to receive under the new premium support plan. This would be a mistake: It would severely restrict the ability of beneficiaries to select the type of plan that best meets their needs and would suffocate the creativity of health plans and insurers in offering a variety of products and services.

They key is to trust consumers and the marketplace. When beneficiaries are free to choose their own coverage, the market will provide more attractive options. Seniors looking out for their own interests and pocketbooks will spend $6,000 much more wisely then a federal bureaucrat, especially if they can reap the savings from purchasing a more cost-effective plan or obtain additional benefits. 

But that doesn’t mean they will sacrifice quality. Every day, people who have paid widely different prices for airline tickets sit side-by-side, yet both get the same safety and arrive at the same time. Many medical services would lend themselves to similar cost efficiencies. 

No one is expecting patients to decide on the most efficient treatment if they are wheeled on a stretcher into an emergency room. But they can make smart choices about the health plan and doctors they want to provide them with care in a crisis, just as millions of federal workers do every year during the Federal Employees Health Benefit Program’s open season.

Medicare commissioners are making decisions now about their final report, due March 1. Senator Breaux says he is close to getting the 11 votes he needs for his proposal to win approval. If his fellow commissioners endorse the plan, they would offer legislators a visionary and workable option to reform and save Medicare.

Instead of appeasing regulators and health police, doctors and health plans would be catering to consumers. Competition will facilitate continued innovation in products and service delivery. The result: taxpayers will be protected, consumers will get better value, and Medicare will become solvent. 



Grace-Marie Arnett is president of Galen Institute, a public policy research organization based in Alexandria, Virginia. She is the editor of Empowering Health Care Consumers through Tax Reform, published in 1999 by the University of Michigan Press.

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About the author