In clarifying his views on Medicare reform over the past few days, Newt Gingrich has articulated a proposal to give seniors a choice between today’s Medicare system and a premium-support system. The official explanation of his proposal on his website says:
My proposed legislation will offer seniors new choices in Medicare, as well. It will give them the option to choose, on a voluntary basis, either to remain on the existing program, or to transition to a more personalized system in the private sector with greater options for better care. If they select the personalized system, beneficiaries would receive support to cover their private sector premiums. Giving all seniors the option to choose their insurance provider will improve price competition and help lower costs for the program.
Gingrich’s plan, at least as it is laid out in that brief paragraph on his website and in some of the answers he has given recently, would instead keep in place today’s out-of-control fee-for-service Medicare and allow it to continue dominating the economics of the entire health sector, but then would create a premium-support system alongside it. That system, like today’s Medicare Advantage program, would not have enough leverage to transform the economics of health care to change how doctors and hospitals approach the business side of their work. It would not enjoy the “advantages” of command-and-control health care (like using Medicare’s muscle to force price reductions that shift costs elsewhere) but could not change the providers’ incentives and so could not draw on the far greater advantages of market economics either. It would therefore very likely prove unable to control costs. This is the problem that various “pilot programs” in Medicare have always had.
The Medicare program requires structural reforms. It is certainly true, as Gingrich has argued, that these reforms need to be implemented in a reasonably gradual way that limits the disruption imposed on today’s retirees and near retirees and that is explained in a careful and responsible way to the voting public. But what Gingrich is proposing, as I understand it, would not amount to a structural reform. It would leave Medicare spending as it is now: bounded only by political promises that never materialize, rather than by market forces that actually improve efficiency and reduce costs.