The current issue (May 25, 2013) of the Economist has an excellent article “Entitlements in America”, which tackles the broad issues of entitlement spending and health care inflation in America. There are many aspects of this whole problem but let’s focus here on “Medicare, the hardest part of the budget”, as the Economist says and with which I totally agree. We cannot get government spending under control, i.e. deficits on a steep downward path, until we figure out how to control the cost of Medicare.
The Economist makes some standard recommendations, such as increasing the eligibility age from 65 to 67 (as for Social Security) and raising premiums on the well-to-do (means testing). These are good ideas but not large enough in scope to make a significant dent on the problem. Somehow or other we need to convert Medicare from a defined benefit program (with no cap on expenses) to the same kind of limited defined contribution program which everyone else has through private insurance. But how can we accomplish this within our political process? Republican House Budget Chair Paul Ryan has taken an enormous amount of heat for proposing to make this switch with a premium support or “voucher” plan. It is much too easy for Democrats to accuse him of trying to destroy Medicare when he’s really just trying to save it by making it financially sound.
The Economist proposes converting the Federal Employee Health Benefits program into a voucher system as an experiment to see if it saves money. Right now FEHB offers unlimited benefits with federal employees paying 35% of the cost. This makes FEHB open ended with no constraint on overall spending, which is exactly the problem with Medicare. Each federal employee would have an annual health benefit amount and would have to decide on what kind of health insurance benefit to purchase with the fixed amount, supplementing with personal funds if desired. If a voucher program for federal employees saves money for the federal government, as it undoubtedly would, then we could confidently convert Medicare to a similarly system.
We have to make big changes in our current Medicare program and here is an excellent suggestion for one possible way to do it!