The Heritage Foundation

The Morning Bell


TUESDAY, OCT 6, 2009

Competition, Not Price-Controls, Will Save Medicare

“I just want to be clear, again: Seniors who are listening here, this does not affect your benefits. This is not money going to you to pay for your benefits; this is money that is subsidizing folks who don’t need it.” Or so President Barack Obama promised our nation’s seniors earlier this year. Problem is, as we have pointed out many times, this is simply not true: Obamacare will absolutely cause reduced Medicare benefits for Seniors. Congressional Budget Office Director Douglas Elmendorf told Congress that and even the New York Times has grudgingly admitted as much.

Specifically, every version of Obamacare waiting to be merged into one bill on Capitol Hill cuts billions of dollars from the Medicare Advantage program. One of the dirty little secrets about Medicare is that it actually only covers slightly more than half of all health care costs for seniors and disabled citizens. Medicare recipients buy the balance of their health care coverage through private supplemental insurance or Medigap coverage. Most seniors, therefore, actually have at least two health insurance providers, the federal government through Medicare, and a private supplemental insurer. Medicare Advantage allows seniors to pay a single premium and receive a much broader range of health care services than just government-run Medicare provides, including prescription drug coverage, preventive-care services, routine physical examinations, and coor­dinated care for chronic conditions.

The Baucus bill, which will be voted on in the Senate Finance Committee later this week, is the least offensive Medicare reform plan currently being included in Obamacare. However, the Baucus bill fails to achieve true reform in two ways: First, it takes all ’savings’ from Medicare reform and immediately plows them into a new deficit exploding entitlement. Second, and more importantly, it preserves the old fee-for-service Medicare program which is based on central planning and price controls.

The better option would be to move Medicare towards a true “premium support” system where the government would make direct contributions to all beneficiaries who could then control how to spend their own health care dollars. This would be the same model as the Federal Employees Health Benefits Program (FEHBP) which provides health insurance to Members of Congress. Heritage fellow Bob Moffit explains:

With modifications, Congress could adopt a premium support system broadly similar to the FEHBP and secure the same positive results in intense competition, patient choice, high quality care, and patient satisfaction. Without such modifications, there is no real reform but just more of the same.

Instead of breaking the President’s promises, and raising health care costs for America’s seniors, Congress should hit the reset button and start over with real competition and state based reform that lowers costs and improves care.