Patient-Centered Reforms Could Ensure Medicare Solvency: NCPA

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Promoting price-sensitivity among beneficiaries could reduce Medicare spending: New Report

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Medicare needs to encourage workers to prefund more of their retiree medical funds and empower seniors to make more prudent spending decisions with the appropriate incentives.

Policymakers must find ways to promote price sensitivity among beneficiaries – or watch Medicare spending continue to surge, cautions a new study by National Center for Policy Analysis Senior Fellow Devon Herrick.

“Perverse incentives for patients and providers to squander Medicare resources are enormous,” warns Herrick. “Medicare needs to encourage workers to prefund more of their retiree medical funds and empower seniors to make more prudent spending decisions with the appropriate incentives.”

Previous attempts to slow Medicare have followed a top-down model, focusing on price controls and capping fees paid to doctors. A more effective way to slow Medicare spending would be to empower seniors by prefunding personal accounts and coupling them with high-deductible plans, reports the study. Herrick suggests:

  • Having workers, along with their employers, each put aside 2 percent of payroll to prefund workers’ out-of-pocket health care expenses when they retire, eventually reaching the point where each generation of retirees pays the bulk of its own post-retirement medical care;
  • Letting beneficiaries use a special type of Medicare Health Savings Account to manage some of their own health care dollars;
  • Rewarding physicians for keeping seniors healthy and allowing them to profit from innovations that lower costs while raising the quality of care.

Leading actuarial consultancy firm Milliman, Inc. produced this analysis of the NCPA’s proposed Medicare reforms and found instituting these and similar reforms could save Medicare an estimated $2.4 trillion annually by 2053 compared to the status quo.

“The continued choice to ratchet down reimbursements to Medicare providers rather than create a sustainable program where senior share some responsibility to control spending is a mistake,” says Herrick. “Medicare should explore other cost-sharing tools that could make Medicare beneficiaries price-sensitive above their deductibles.”

Reforming Medicare with Personal Accounts, Incentives and Better Plan Design: http://www.ncpa.org/pub/reforming-medicare-with-personal-accounts-incentives-and-better-plan-design

The National Center for Policy Analysis (NCPA) is a nonprofit, nonpartisan public policy research organization, established in 1983. We bring together the best and brightest minds to tackle the country's most difficult public policy problems — in health care, taxes, retirement, education, energy and the environment. Visit our website today for more information.

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Catherine Daniell
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