- The Washington Times - Sunday, June 8, 2003

Congress and the Bush administration are perilously close to committing a colossal blunder on Medicare. Legislation is being drafted to reform the program for the next generation of retirees, and there’s a real possibility policy-makers will agree to extend Medicare’s price controls to new private health plans created by the reforms.

What’s nudging politicians to commit this blunder? The limited capabilities of economists in the Congressional Budget Office. While CBO number-crunchers can tally up what it would cost to tinker with Medicare’s system of government controls, they seem incapable of realistically estimating how people would act if the government no longer told them what health coverage they can have and how much doctors can charge.

Capitol Hill insiders report that the CBO’s preliminary cost estimates for proposals to give seniors private insurance coverage options are sky-high. But that should surprise no one, as the CBO simply assumes that, unless government sets prices and regulates treatments, seniors would go on a health-care buying spree, and doctors and hospitals would raise prices through the roof.

If you’re aware of the fact that this sort of behavior is not seen in other sectors of the economy that lack government price controls, like food or clothing, you probably have a better grasp of basic economics than some of the experts at CBO.

But, scared by CBO’s inflated cost estimates, some Medicare reformers are now considering extending federal price controls to the private-plan options they would create. This would doubtless produce lower CBO cost estimates, but it also would torpedo their own reforms, consigning boomers to a retirement of decreasing access to health care and declining quality of care.

Medicare’s current problems stem from basic design flaws. Instead of being patient-centered, it’s provider-centered. Medicare pays doctors and hospitals directly, on a per-procedure basis. As a result, Medicare patients receive treatment in an episodic, fragmented, acute-care fashion, instead of via an integrated, chronic-care approach.

Initially, Medicare paid doctors and hospitals pretty much whatever they charged for whatever they did. Not surprisingly, Medicare spending escalated as providers did more and charged more, without anyone thinking much about the real benefits of the treatments provided.

In the 1980s, Congress reversed gears and imposed Medicare price controls on doctors and hospitals. But rather than solve the problems, price controls compounded them. Today, elderly health care is driven less and less by medical necessity and best practices, and more and more by which services and treatment settings offer better Medicare reimbursement.

Retirees also now lag behind the non-elderly in getting access to new treatments, devices and procedures. The Medicare bureaucracy must first approve every medical innovation — and give it a price — before doctors can provide it to their elderly patients. The approval process can take years. Add to this the voluminous regulations and paperwork Medicare foists on providers, and it’s not surprising that more and more doctors are simply refusing to accept Medicare patients.

If Medicare remains unchanged, the prospects for the baby boomers — the first of whom will join the program in only eight years — are fewer doctors willing to treat them and a declining standard of care.

Reformers want to help tomorrow’s retirees escape that trap by giving them the option of choosing between “traditional” Medicare and a set of new, private coverage plans, subsidized by the government. However, the new plans must be free to structure how they deliver and pay for medical care.

Extending Medicare price and access controls to the new private plans would preclude them from crafting the patient-centered, integrated-care systems seniors need and deserve. That’s too high a price to pay for accommodating the forecasting limitations of CBO.

Edmund F. Haislmaier is a visiting research fellow in the Center for Health Policy Studies at the Heritage Foundation.

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