Rethinking Medicare Reform

PROLOGUE: Medicare, the nation's insurance program for elderly and disabled persons, has been the subject of intense debate and periodic reform since its passage thirty-three years ago. Current versions of the Medicare reform debate reflect a split of opinion that, surprisingly, does not always fall along classically political lines. The issue at hand is financing. Evidence is mounting that the program is in financial trouble, despite short-term solutions crafted as part of the Balanced Budget Act of 1997. Lawmakers still disagree on how to address the dwindling levels of the program's two trust funds. One approach would make managed competition the key strategy: Beneficiaries would receive vouchers for a defined amount and seek care in the private health care marketplace. An opposing view, espoused by Ted Marmor and Jonathan Oberlander in this paper, is an attack on conventional wisdom in 1998 America, in that it looks abroad to Canada and western Europe for models of health care cost control. Their internationally inspired approach involves budgetary caps and public regulation of payments to providers. Marmor is a longtime participant in the debate surrounding both medical care costs and Medicare policy. A professor of politics and public policy at Yale's School of Management and Department of Political Science, Marmor also directs Yale's Robert Wood Johnson postdoctoral program in health policy and social science. He holds a doctorate in politics and history from Harvard. The second edition of his Politics of Medicare will be published by Aldine de Gruyter in 1998. Oberlander is an assistant professor of social medicine at the University of North Carolina, Chapel Hill, School of Medicine and teaches in the political science department. He received his doctorate in political science from Yale. He is revising his dissertation on the administrative politics of Medicare for book publication. ABSTRACT: Many health policy analysts argue that demographic pressures, the inflationary nature of fee-for-service payment, and the uncontrollable nature of defined-benefit insurance make Medicare unsustainable in its current form. They assert that Medicare can remain fiscally viable in the next century only by embracing a voucher system and exposing beneficiaries to the economic consequences of their medical care decisions. We argue here, however, that Medicare need not rely on vouchers or on placing financial incentives on individual beneficiaries to control costs. Instead, we contend that Medicare can control expenditures the way most other industrial democracies do: through budgetary caps and centralized regulation of provider payments.