Entitlement reform is a major sticking point in "fiscal cliff" negotiations. Republican House Speaker John Boehner has proposed cutting $900 billion in entitlement spending over the next decade, and President Obama's plan doesn't include entitlement reform.
Rather than the Patient Protection and Affordable Care Act's system of rationing care, and paying doctors on the basis of outcomes, America needs to inject more choice into Medicare. As politicians wrangle over the fiscal cliff, long-term entitlement reform should be part of the discussion.
Medicare presents the most daunting challenges. The Office of the Actuary at the Center for Medicare & Medicaid Services has estimated that without the projected Medicare spending cuts under the Affordable Care Act, which past Congresses have waived, Medicare expenditures as a percent of gross domestic product would grow from 4 percent today, to 8 percent in 2050, to 10 percent in 2080. With the cuts, Medicare spending would be 7 percent of GDP in 2080.
Meanwhile, Medicare reimbursements are lower than in most insurance plans, and many Medicare patients complain that doctors won't see them. In some areas, Medicare patients face shortages of doctors and long waits for appointments.
A doctor in suburban Maryland told me that Medicare's reimbursement covers only a small fraction of his fee, and that with prospective cuts in reimbursement rates, it will not be worth taking Medicare patients. In addition, many private insurance companies calculate reimbursement rates from Medicare's rates, so these will decline also.
Plus, the doctor told me, if he is paid on the outcome of his treatment, following new Medicare guidelines, then his incentive is to focus on healthy patients and exclude sick ones.
Another measure is the number of patients seen -- but seeing more patients leaves him less time for existing patients and their problems. If he should make a medical error caused by rushing too many patients into one day, Medicare gives him no protection against lawsuits.
Costs also rise because, as medical technology improves, people naturally want to use it. And why shouldn't they take advantage of pacemakers and hip replacements that enable them to live longer, more productive lives?
Some technology gets cheaper with use. Consider the iPhone 4. People waited around the block to buy them when they came out, but now phone companies such as AT&T are giving them away for free with a two-year contract.
Why doesn't medical technology get cheaper in the same way? One reason is that people don't shop for health care technology with their own dollars. A better way to combine fiscal responsibility with health care reform is to empower seniors to choose from private plans competing for their business. It works with the prescription drug benefit and it could work for all of Medicare. Outside of Medicare, competition has dramatically lowered prices for Lasik eye surgery and cosmetic procedures.
One way to inject competition into Medicare is premium support, an idea dating back to the 1997 National Bipartisan Commission on the Future of Medicare. The commission's premium support idea is now found in the 2013 House budget. Modeled after the Federal Employee Health Benefits Program, it would allow Americans 55 and under, beginning in 2023, to choose from a variety of government-approved competing comprehensive health insurance plans, at different prices with different levels of service. Current Medicare recipients would not be affected.
Plans could include high-deductible plans carrying lower premiums combined with health savings accounts, or more traditional managed care or fee-for-service plans. Traditional Medicare would continue to be an option.
As it stands now, Medicare cannot keep its promises to future seniors -- that is, today's young, who are being asked to shoulder an increasing burden. The fiscal cliff negotiations should include alternatives.