What should we do with Medicare?

Daniel Shaviro offers the following suggestions:

1. Reduce Medicare’s low-end coverage of routine expenditures, and use replace deductibles with lesser copayments that extend over a broader range.

2. Provide prescription drug and catastrophic care coverage without increasing the overall value (net of premiums and copayments) of Medicare [Ha!, interjects TC, this must have been written before the Bush bill passed]

3. Impose a tax on Medigap coverage of Medicare copayments, or else bar such coverage altogether.

4. Make copayments income-related…[“means-tested”]

5. To the extent that income tax increases are needed, use base-broadening in lieu of rate increases to the extent possible.

6. Enact a consumption-style VAT without transition relief for old wealth.

7. Use accounting rules to discourage Congress from dissipating the net revenue from tax increases that are meant to help meet future Medicare liabilities.

8. Attempt to realize cost savings by modifying Medicare’s current fee for service structure. While managed care has had disappointing results as applied to workers under age sixty-five, this may reflect the political and legal obstacles to imposing rationing.

My take: This is a serious effort to solve a real problem. I’ll endorse 1-4 and 7. When it comes to higher taxes, let’s just hope that productivity growth remains high. If I have to, I’ll get out and push. #8 sounds too much like putting old people out on ice floes, but it would solve at least twenty percent of the problem with only minimal impact on life expectancy. And for the proposal to be effective, how voluntary would managed care be? For those reasons, I can’t press the “do it” button on #8; I’ll give it a pass and plead political infeasibility. And while I am fully aware that Medicare is the fiscal train wreck, compared to which most other economic problems pale, shouldn’t the words “cut spending” somehow play a role?

Here is my previous post on Shaviro’s illuminating book. Today was Shaviro on “what should happen.” Stay tuned for Shaviro on “what will happen.”


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