U.S. Medicare: Fee-For-Patient Needed


While the Social Security retirement system is largely solvent, Medicare, also based on payroll deductions, will soon be in deep financial trouble, unless changes are made.

The retirement plan works, because the government bases retiree payments on the contributions the workers themselves have made during their lifetimes. The Medicare program has problems, because the amounts the health care providers are receiving are greatly in excess of the contributions made to the plan.

30 years after Social Security retirement was created (1935), Medicare was added (1965). Medicare provides health care for people age 65, or older. From 1965 through 1991, one deduction of 7.65% was taken from every paycheck for retirement and Medicare. The 7.65% deduction was segregated in 1991, into a 6.20% allocation for retirement, and a 1.45% sum for Medicare. Employers have been making matching contributions all along.

I added up my personal contributions to Medicare since 1991, using my old W-2s, and doubled that sum to account for the matching employer payments. Up to this point, the contributions are only about enough to cover one major surgery. Since life expectancy for men is now 76, and for women it is 81, Medicare has nowhere near enough money from contributions to cover men for 11 years (65 thru 76), or women for 16 years (65 thru 81).

The solution is not the Republican Budget Voucher Plan, introduced by Paul Ryan, which would turn the system over to private insurance companies, and would effectively destroy it. Since Ryan does not regulate insurance premiums, his $7,800 annual voucher would be worthless for most seniors, as they could not afford the premiums in excess of the $7,800 voucher, or the various charges private insurers refuse to pay.

The Medicare solution is to control health care costs. It has been difficult to control them up until now, because they are paid by Medicare, a third party, and neither the patient, nor the health care provider, has had any incentive to keep them down. Economic incentives need to change, if the plan is going to work.

Health care providers must have an incentive to keep costs down. Hospitals and doctors are currently rewarded for billing for every service provided. The more lab tests, X-rays, or scans, and so on, the more that is billed, and the more the health care provider receives. This “Fee-for-Service” system does not work, because it lacks cost controls, and is too expensive.

We should instead adopt a “Fee-for-Patient” system. Every retiree 65 and older would choose a hospital and doctor, within their geographic area. Instead of giving out a $7,800 voucher to a private insurance carrier, the same sum would be paid directly to the patient’s designated health care provider, who would in turn provide all the medical services the patient needs for that year.

Under the “Fee-for-Patient” system: 1) private health insurance companies would have no role; 2) patients would receive only the care they need; 3) health care providers would have an incentive to control costs and would stop running up unnecessary bills; and 4) government outlays would be fixed and finite, and the system would once again gain some fiscal control.

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