Reforming Medicare to a Premium Support System

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Connor Roberg
ECON 427
Professor Joiner
17 April 2013

Changing Medicare to a Premium Support System

The high and rising cost of the United States health care system is placing a huge burden on families, businesses, and the younger generations who are going to be stuck paying for the national debt that is continually increasing. The fiscal stability of our government and the United States as a whole is at risk due to the current health care system that is in place. Current health care spending in the United States is characterized as being the most costly per person as compared to all other countries, as you can see in Figure 1 at the end of this analysis. Yet, despite this overwhelming spending, the overall quality of health care is low by many measures; in fact, the Commonwealth Fund ranked the United States last in the quality of health care among similar countries. The current debt owed by the United States federal government is approaching $17 billion and the cost problem regarding the U.S. health care system is exponentially increasing this amount. There is wide agreement that we, as a country, must find ways to bend the health care cost curve. The best way to do so is through implementing a premium support system into Medicare in order to shift the health care model from one that is driven by the volume and intensity of services to one that rewards cost-effective and efficient care.

The current health care system that we have in place is flawed in several ways. The average U.S. person spends $8,233 per year on health care, two-and-a-half times more than most developed nations in the world, including relatively rich countries such as France, Sweden and the United Kingdom (Kane). Health care expenditures in the United States are currently about 18 percent of GDP, a percentage that continues to increase due to health care costs are projected to continue growing faster than the economy. If health care costs continue to grow at historical rates like they have been for the past several years, the share of GD devoted to health care in the United States is estimated to reach 34 percent by 2040 (Whitehouse.gov). The government is currently paying too much for beneficiaries enrolled in Medicare, which, as of 2011, accounted for 21 percent of total national health expenditures with a cost of $554.3 billion (cms.gov). The tremendous variation in Medicare spending per beneficiaries across counties and states is an enormous factor contributing to these outlandish expenditures. These variations come without corresponding differences in medical outcomes or medical needs. These trends are going to take away from other critical federal investments, such as, investments in education, infrastructure, and the defense program. Not to mention these trends are significantly contributing to an unsustainable debt for future generations to deal with.

Inefficiencies in the current health care system are not limited to federal expenditures and financial failures, many other sources contribute to the lack of efficiency. One major contributor is the fact that our current health care system is defined by payment systems that reward the volume of medical inputs. Rather than having a system that rewards medical outcomes, like almost every other developed country, our system financially incentivizes physicians according to the volume of services they provide. Such flaws in the system explain why there are approximately 48 million people in the United States who are uninsured. Extremely high financial costs—especially in comparison to other countries—are another root inefficiency that is contributing to our flawed health care system. Accordingly, health care reform will have to include solutions to decrease these administrative costs as they do not improve medical outcomes or health status. There is also a lack of preventative care which, if improved, could adequately decrease the percentage of our population suffering from various...
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