Medicare Reform Is on the Table Once Again

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BY MERRILL MATTHEWS–  The financial disaster facing the country if it doesn’t get control of entitlement spending has made discussion of Medicare reform fashionable again.


There are several proposals being suggested that would transition Medicare over time from a defined-benefit plan (where the benefits are outlined and the government pays for all the covered care) to a defined contribution plan (where the government provides a set amount of money each year and the senior buys his own policy). They also include a cap on future Medicare outlays, allowing the annual contribution to grow at the rate of inflation plus, say, 1 percent, as the Ryan-Rivlin plan does.

It’s not a new idea. Back in 1987, IPI’s own Peter Ferrara proposed a similar idea in Policy Review.

A variation of it was passed in 1997, known as Medicare+Choice. M+C provided a fixed contribution to a qualifying health plan, which agreed to cover a senior’s health care needs. The legislation envisioned lots of different types of private sector health insurance, including Medicare Medical Savings Accounts, competing for each senior’s business.

But ham-handed regulators and legislation made it impossible for any but HMO-type coverage to participate. And shortly after passage Congress began cutting back funding, which forced a number of health plans to drop out, forcing millions of seniors to move back into traditional Medicare.

Congress improved M+C when it created Medicare Advantage (MA) in 2003, which has been working well for millions of seniors. But President Obama and the Democrats decided those plans were getting too much money so ObamaCare cuts their allotment. Not surprisingly, some MA plans have announced they will be cutting back or dropping out.

As long as the government is doling out the defined contribution, it will politicize the program. A better solution would be to let workers put their Medicare payroll tax into their own personal account, and at retirement they could draw out their own defined contribution to give to a health insurer, or buy into traditional Medicare (to appease those concerned about a viable safety net.

The proposals being offered are a step in the right direction, but they still give Congress too much control. Just let workers keep their own money and decide how and where to spend it on health insurance after retirement.

Today’s TaxByte was written by IPI Scholar Dr. Merrill Matthews.