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Can the Government Engineer Better Health-Care?



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Here’s the good news. Powerful Democrats, led by Senate Finance Committee Chairman Max Baucus, have essentially admitted that Medicare’s current structure is a big part of the health-care problem. That’s a genuine breakthrough, with important consequences. 

For years, many Democrats have argued that the way to fix health care in America is to make the whole system look more like Medicare. That’s the thinking behind the so-called “Medicare-for-all” plans and the effort to create a new government-run insurance plan for the working age population this year.

But, now, Senator Baucus has joined a growing number of analysts who say it’s really the other way around. The Medicare model is not the solution but the problem, or at least a big part of it.

Baucus held a public forum last week on the subject — which he calls “delivery-system reform.” At the forum, numerous health-policy analysts argued that Medicare’s payment systems are creating all kinds of distortions in hospital and physician practice patterns — distortions that erode the quality of care provided for everyone, and are costly too. This week, Baucus released a white paper detailing the reforms he thinks are necessary to address the problem. Most would involve changing how Medicare buys services.

There are certainly some meritorious ideas on the Baucus list. Most are aimed at encouraging more care coordination among doctors, hospitals, nursing homes, and clinics. Hard to argue with that.

But the basic premise of the Baucus list is flawed. 

Like Peter Orszag, the director of the Office of Management and Budget, Senator Baucus believes the federal government has the capacity to engineer more efficient health-care practices, from Washington. All that’s needed is better analysis and smarter payment systems designed by the bureaucracy.

That’s a very questionable assumption.

Medicare looks and operates as it does for a reason — politics. Medicare can’t play favorites. All licensed health-care providers get paid exactly the same. There’s no government-run PPO because that would mean steering patients to certain physicians and hospitals and not others. Moreover, politicians want to insulate their retired constituents from the financial consequences of their health-care decisions. Put it all together and you have an insurance plan that can’t control volume. The only cost-cutting mechanisms available are price controls, which make matters worse.

Senator Baucus is right that fixing health-care means fixing Medicare. But nothing on the Baucus list would get the government out of the business of micro-managing health insurance, which is the source of the problem. What’s really needed is a reform that shifts financial control from the government to Medicare’s beneficiaries.



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