Medicare: Fix It Now, Fix It Later

National Review Online
Tuesday, July 05, 2011

Sens. Tom Coburn (R., Okla.) and Joe Lieberman (I., Ct.) have produced a Medicare-reform proposal. The bill would save Medicare $600 billion over ten years and extend the program’s solvency by 30 years. It would save money by raising the eligibility age to 67 by 2025, increasing premiums and co-pays, and means-testing benefits so that wealthier beneficiaries paid more. It would also curtail “Medigap” plans — which cover the difference between what Medicare pays and the total cost of a procedure, reducing the program’s already-modest incentives for seniors to economize on care.

The proposal is a good one, and it would be even better if its means-testing provisions were modified so as not to reduce incentives to work, save, and invest. Coburn-Lieberman could gain some Democratic support, and it makes a good bargaining chip for fiscal reformers in the debt-limit debate. But nobody should be under any illusion that this legislation makes the Ryan plan’s Medicare reforms unnecessary. It is a complement rather than an alternative to the Ryan plan. It would achieve short-term cost savings while leaving the fundamental problems of Medicare untouched. Ryan’s plan has the opposite virtue and vice: It would take years to go into effect, but would truly fix the system.

The reason this bill would make Medicare solvent for 30 years, rather than for the foreseeable future, is that even deep cuts won’t change the incentives the program creates. Medicare would still operate on a “fee for service” model — which pays doctors more whenever they perform additional procedures, regardless of the expected health benefit, and also makes the program a target for fraud. The best way to fix this problem is to give seniors money to put toward premiums, and allow private insurance companies to compete for the money. This approach would reward insurance companies for designing plans that both cover important procedures and give doctors an incentive to control costs. That’s what the Ryan plan would do, albeit years down the road.

Coburn-Lieberman also eliminates one of the few remaining arguments for IPAB, Obamacare’s Medicare-rationing board. The board’s defenders point out that it would yield savings in the short term, unlike Ryan’s plan. But Coburn-Lieberman would do the same thing, only without setting up an unelected board whose only power is to cut payments to doctors and pharmacies — that is, to ration — and that can in some cases enact policies without input from elected officials.

The question we should be asking is not which of these proposals to support, the Coburn-Lieberman cuts or the Ryan reform. It is: How can we enact both?