March 1 2012

A Little Health Care Good News?

Carrie L. Lukas

With the economy stuck in the doldrums and a steady flow of data indicating that ObamaCare will indeed be the financial disaster that was predicted, as well as an innovation and job killer and creator of discord, it may be surprising to hear a bit of optimism about the future of the U.S. health care system.

Yet Fred Barnes reports in the Wall Street Journal about the growing consensus—for now about Republicans, but spreading to a growing number of rational Democrats—for fundamentally changing Medicare into a system that offers seniors “premium support.” That means Medicare would help seniors paying for health insurance, rather than offer the current fee-for-service system that encourages over-consumption and government micromanaging (and ultimately rationing) of medicine.

Barnes writes:

How would premium support work? Beginning in 2022, it would create a marketplace in which seniors have a fixed amount of money to buy health insurance. The amount of "support" would match the price of the insurance "premium." The poor would get additional support to offset out-of-pocket expenses. The better-off would get less. Payments would be "risk-adjusted" so the sick would be assured of full coverage.

Yes, it's a bit complicated. Insurers would compete for the business of seniors. There would be three options. One would be coverage at the support level. Another would offer less coverage at a lower price, with the difference rebated to the beneficiary. The third would provide broader coverage at a higher price, requiring the beneficiary to pay the amount above the support level.

That's the health-care part of premium support. The cost-saving part is simpler. Medicare in its current form is open-ended, its expenditures uncontrolled and unsustainable. With premium support, the cost of Medicare would be capped. Its payment would rise with the rate of inflation or GDP growth, or slightly above.

I've written before about the need to bring the basic concept of price back into health decisions. Reforming Medicare to be a premium support system would be an important step in that direction.

But best of all, even though it would encourage efficiency and cost savings, it wouldn't destroy incentives for innovation. That's the aspect of ObamaCare that I think Americans should find most troubling. Empowering government bureaucrats to control treatment plans for all American seniors (through IPAB) would throw cold water on anyone considering in investing in new treatment plans.

Health care can be such a confusing topic. I hope that Americans are getting one message from the current debate about our health care systems future, beyond that ObamaCare represents a threat not just to our medical system, but to the basic American concept of limited government and individual freedom. There are better ways to reform our health care system. We don't need to follow the European top-down, government-run model. We can move toward an American model with more competition and efficiency by giving individuals more control of resources.

Apparently that message is making headway in Congress, which is the best policy news I've heard in a long-time.

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