Adjunct scholars at the Cato Institute want the government to give seniors the money spent on Medicare by depositing it into a health savings account. The idea is that consumers – seniors in this case – are better stewards of their money than a profligate spending government program.
The basic problem is that the federal government is careless with taxpayer money. During the pandemic, criminals may have stolen hundreds of billions of dollars from the Paycheck Protection Program and other giveaways.Medicare is just as profligate. The government can’t tell which claims are legitimate, so it pays them all and occasionally chases fraudsters after discovering it has been robbed. By failing to audit bills before paying them, the federal government squanders hundreds of billions of dollars every year. As long as it controls how healthcare dollars are spent, fraud will persist and services will cost more than they should.
As an example of why allowing seniors to control their own funds would save money the authors use lasik and cosmetic surgery as an example, both topics I’ve written about extensively in years past:
Providers post their prices and work hard to keep them low. From 1996 to 2005, the real price of Lasik fell by 30%. The real price of cosmetic surgery also fell, despite innovation and increased demand. There are no prior approval requirements or surprise bills. Fraud is rare, and drugs cost less because no fees are paid to pharmacy benefit managers or insurers.
As a thought experiment I sometimes like to imagine how systems like this would work. On the one hand I’ve been told repeatedly that consumerism does not work in health care. I’ve also been told (even by conservatives) that examples from cosmetic medicine are not real medicine and are not applicable to medical care. On the other hand, it’s not my job as an economist to figure out how to make it work. Making it work is the job of entrepreneurs. My job is to get the incentives right so entrepreneurs can experiment and find what works.
Naysayers will quickly argue that seniors are too easily swayed. Their health is often precarious, and a hospital employed doctor could quickly bankrupt their HSA on unnecessary care. There would need to be some type of guardrails. Currently there are none and Medicare bears the brunt of waste, fraud and abuse.
Years ago I had lunch with a group whose business model was assisting employee health plans. Workers were not expected to go it alone. They had help. An employee needing a hip replacement, for example, would call the Compass hotline and talk to their personal representative. The Compass rep would steer the patient to the health care provider who offered the best deal in return for lower cost sharing. This service was funded by a per member per, month cost that the employer paid. While talking to the CEO of the company I mentioned, Vitals, another company I was familiar with offering a similar service. The CEO said, “compared to them we’re much more high touch than they are.” His point was that there are different business models offering different levels of support at different price points. If you have cancer, you will likely want a more comprehensive service. If you’re healthy, you may not wish to pay for a comprehensive service with a personal representative. A lower-level service may have an online database of prices, while a comprehensive service may have a personal representative who can negotiate on your behalf. When seniors are paying for the services of an advisor to help them be better consumers, they could save billions for U.S. taxpayer dollars.
Some of the requirements include absolute price transparency, with package prices and no surprise bills. Clinics that refused to cooperate would risk losing business. Over time providers would likely begin to compete for seniors’ business like California hospitals did in the CalPERS joint replacement experiment that took place a few years ago.
Another factor is that 80% of expenditures are on the sickest 20% of seniors. Indeed, 50% of spending is on the sickest 5% of patients. Perhaps we should let seniors police the spending of the healthy 80% of care and help then closely manage the care for the sickest 20%.
Thanks for presenting some sound ideas here.
It would be challenging to determine just how much money to give to each senior for buying primary care. I don’t think you could give each of them $4,000 a year, or whatever, because some will save money and others will be soon be broke.
If you had to pay out based on the medical history of each senior, this would be a time consuming process.