Economic Principles for Medicare Reform. Issue 1 (November 2019)

• Record Type: Journal Article
• Authors: Chandra, Amitabh; Garthwaite, Craig
• Other Names: Moffitt Robert A. guest-editor.; Ziliak James P. guest-editor.
• Is Part Of: Annals of the American Academy of Political and Social Science. Volume 686:Issue 1(2019)
• Page Start: 63
• Page End: 92
• Publication Date: 2019-11
• Subjects: Medicare -- value-based care -- health care reform -- markets in health care; Social sciences -- Periodicals; Social sciences -- United States -- Periodicals; Political science -- Periodicals; United States -- Politics and government -- Periodicals; 300
• DOI: 10.1177/0002716219885582
• Languages: English
• ISSNs: 0002-7162

Abstract

In this article, we develop an economic framework for Medicare reform that highlights trade-offs that reform proposals should grapple with, but often ignore. Central to our argument is a tension in administratively set prices, which may improve short-term efficiency but do so at the expense of dynamic efficiency (slowing innovations in new treatments). The smaller the Medicare program is relative to the commercial market, the less important this is; but in a world where there are no market prices or the private sector is very small, the task of setting prices that are dynamically correct becomes more complex. Reforming Medicare should focus on greater incentives to increase competition between Medicare Advantage plans, which necessitates a role for government in ensuring competition; premium support; less use of regulated prices; and less appetite for countless "pay for performance" schemes. We apply this framework to evaluate Medicare for All proposals.