Arnold Kling  

Medicare Proposal

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Laurence Kotlikoff suggests this.


All Medicare participants would receive individual-specific vouchers on October 1st of each year to purchase insurance coverage for the following calendar year. The size of the voucher would be based on the participant's current medical condition (an idea first suggested by Peter Ferrara of the Institute for Policy Innovation and John Goodman of the National Center for Policy Analysis). A healthy 67 year-old might get a voucher for $7,500, whereas an 85 year old with pancreatic cancer might get a voucher for $85,000. The vouchers would take account of the participant's age, region, sex, and other factors that affect health costs. Because those in the worst medical shape would get the largest vouchers, insurance carriers would be happy to sign them up.

For Discussion. Compared with the proposal for the government to provide catastrophic reinsurance, what are the benefits and drawbacks of Kotlikoff's idea?


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COMMENTS (5 to date)
Lawrance George Lux writes:

Simple idiocy. It does not aid in containment of medical costs at all, actually increases Government liability, endangers the security net by leaving it to aged Seniors to comply with the requirements, and gives equal status to all Seniors--quadrupling the bill. There need be limitation of liability in Government funding, not vast riches for the health care industry. lgl

Boonton writes:

Drawbacks:

1. It transfers risk from insurance companies to the taxpayers. Require any insurance company that wants to accept the vouchers to charge nearly uniform rates.

2. There should be a pool of some type for those who neglect to utilize their voucher. Something along the lines of a default coverage that is changed as soon as the individual chooses how to spend their voucher.

3. The voucher's size should be limited to the tax base, refundable against employer provided insurance, donatable to charity or other people's health needs, and probably able to be turned into cash somehow in order to provide an incentive for people to find economical coverage.

Erik Sargent writes:

This assumes that a person's health can be qualified in a practical way, which isn't true. For instance, the disability related to Alzhiemer's or ALS ranges from near zero to complete incapacitation - with varying degrees of need (cost) associated with each side of the range. Other Dx can be somewhat subjective, such as depression.

The worst part about this would be the policization of costs associated with each disease type. For instance, if you only give an extra $500 for general hypertension, but $5,000 for more advanced heart disease there will be a lot of arguements about prevention. More critically, if you budget only a $500 bonus for diabetes, but $750 for asthma you will be accused of not caring about diabetes as much as asthma. The next year, diabetics will get $750 too. But now you are anti-gay because you increased the allotment for diabetics by 50%, while keeping the $8,000 bonus for HIV the same.

Now imagine the fraud from false Dx...

There is also a reverse incentive for cost-cutting in treatment of any particular Dx.

Pooling everyone together may be viewed as economically ineffecient, but it bypasses a lot of other ineffeciencies and is the best solution.

Steve writes:
1. It transfers risk from insurance companies to the taxpayers. Require any insurance company that wants to accept the vouchers to charge nearly uniform rates.

Can't this be said for catastrophic reinsurance plan?

2. There should be a pool of some type for those who neglect to utilize their voucher. Something along the lines of a default coverage that is changed as soon as the individual chooses how to spend their voucher.

3. The voucher's size should be limited to the tax base, refundable against employer provided insurance, donatable to charity or other people's health needs, and probably able to be turned into cash somehow in order to provide an incentive for people to find economical coverage.

Are these really drawbacks or fine points. Can't we make a similar claim about the catastrophic reinsurance plan and number 3?

Simple idiocy. It does not aid in containment of medical costs at all, actually increases Government liability, endangers the security net by leaving it to aged Seniors to comply with the requirements, and gives equal status to all Seniors--quadrupling the bill. There need be limitation of liability in Government funding, not vast riches for the health care industry.

I'm curious as to why there wouldn't be a cost containment problem with the catastrophic reinsurance program? What is to stop the politicians from periodically lowering the limit on coverage in exchange for votes?

John Doe writes:

The government needs to decide when to allow people to die. No matter how we try to pay for it, we just can't pay huge amounts extending the lives of elderly people by a few weeks.

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