Let’s say Medicare is transformed into a limited defined contribution to the purchase of insurance, and the Medicare voucher increases at a rate of GDP growth + 1% over time. Insurers and providers would be given wide scope to embrace new business models.

Assuming that medical cost growth continues to outstrip that growth rate by a wide margin, an ever-growing share of the current Medicare benefit package will have to be paid for out of pocket. Moreover, if we build in protections for the most vulnerable seniors, other seniors will face an even higher out-of-pocket spending burden. But of course there will be a strong incentive for insurers and providers, facing fewer limits on how they can organize their operations, to deliver services at lower cost.

If, in contrast, we offer a defined benefit forever, where exactly is the incentive to reform existing practices? Other than easy-to-kill bureaucratic commands and pilot programs?