Medicare Funding Crisis

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Donnie Tatar
University of Michigan
HSM544: Health Policy and Economics

As the newly appointed chief of staff I have been tasked with responding to a proposal for reducing Medicare expenditures by enrolling participants in HMO. I understand that we have some key questions must be addressed and that we must justify our position on either economic efficiency or equity grounds. Outlined below are some of the questions that must be answered in order address this issue properly. Is Medicare in a state of crisis?

Are you aware of the various policies that are being enacted from each state to state regarding the qualification of Medicare? Medicare is funded by the federal government and each state is responsible for operating the Medicare program as well as the local Medicaid programs. However, premiums have increased for Medicare and also, the coverage has changed in the past few years requiring people to purchase additional supplemental Medicare policies - this is difficult for elderly that have fixed incomes. If the elderly are unable to purchase Medicare, they will go uninsured. The Medicare system is double-funded. It is funded by the taxpayer (federal dollar) as well as the premiums being collected. But, in being double-funded, the coverage is still not as high as most private insurance companies making them appear with less quality. Are radical measures necessary to preserve the program?

This is a very interesting question and you will have to take a more subjective approach to answering it. I don't believe there are radical measures that must be taken to preserve the program because it is funded through two divisions - the federal government (taxpayer) and the premiums being collected. However, the cost of providing the medical services is much higher than the cost being collected. Perhaps a more responsible approach would be to evaluate the cost of the medical services being provided and standardize a cost table among all insurance companies...
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