Why Medicare Needs to Be Reformed and How to Do It

 

My last post, “Fixing Obamacare Rather Than Repealing It,”presents a comprehensive new healthcare reform proposal by Avik Roy of the Manhattan Institute.  His plan has the ambitious goal of expanding health insurance coverage beyond ACA levels and at the same time achieving a huge deficit reduction compared with current CBO projections.
Capture1Mr. Roy points out, for example, that for all of Medicare’s huge cost, $635 billion in 2014 alone, it does not provide catastrophic coverage against long-term hospitalizations.  The supplemental insurance program, “Medigap,” accelerates Medicare’s wasteful spending by wiping out cost-sharing features such as co-pays and deductibles.  Medigap has proven hard to change because it generates huge royalty fees for the AARP, $458 million in 2011, for example.  For all of these reasons and others, Medicare needs big changes.
The core Medicare reform of Mr. Roy’s Universal Exchange Plan is to increase the eligibility age by four months per year forever, beginning in 2016.  This means that current seniors can stay in the existing Medicare program but that future retirees will remain in the universal state-based exchanges for an increasing period of time.  This is estimated to save $6.5 trillion over 30 years.
Additional features of the new Medicare program are:

  • Reduce Medicare subsidies for hospital’s uncollected bills saving $4 billion per year.
  • Exempt Medicare Part C and Part D from state and local taxes.
  • Combine Part A and Part B into a single insurance product saving $30 billion per year by reforming Medigap.
  • Introduce additional means-testing into Part D premiums.
  • Reduce waste, fraud and abuse systematically, saving approximately $50 billion per year.
  • Restore the ability of seniors to opt out of Medicare.
  • Restore the pre-ACA tax subsidy for employer-sponsored retiree coverage (to encourage more employers to sponsor retiree health benefits).
  • Address the physician shortage through additional medical education funding costing $6 billion per year.

Medicare spends 30% of its overall budget on end-of-life care (for the last six months of life).  The reforms suggested by Mr. Roy will allow it to operate much more efficiently and thereby put a greater focus on the end-of-life care which is its fundamental purpose.

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