Medicare Voucher Program Illustrates “Third Rail” Risks

The backlash over Rep. Paul Ryan‘s plan to alter Medicare from its current form to a premium support model illustrates that Social Security is not the only so-called “third rail” in American politics.  The premium support (voucher) concept would shift Medicare from paying as it currently does, to giving premium support which would be used by beneficiaries to purchase insurance in the private market.

Although Ryan was chastised, he deserves some credit for acknowledging that escalating health costs will eventually require that something is done, and that the current model may not be sustainable.  In a way, Medicare vouchers can be viewed as a version of food stamps.  The analogy is limited, but in such a system, government outlay is capped.  A notable difference is that the food stamp program does not set the prices for groceries.  Another important difference is that food sellers are involved in vigorous competition, and that combined with consumer discretion and price sensitivity means consumers can expect good value.  Healthcare does not work in this manner.

As noted by analysts, premium support will not work if insurance premiums grow faster than the vouchers, as all metrics seem to indicate they will.  Before long, beneficiaries will fall behind as premiums rise, perhaps very far behind.  The system could work if forces ensured that health systems competed vigorously on price, service and outcomes, and if the public could make informed choices regarding coverage options.  Altering the Medicare system in such a fashion seems very unlikely due to political and practical barriers, especially in the short term.   But the efforts towards transparency and working to lower the cost of services through market forces should continue, and ideas toward this end should be welcomed.


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