Why Medicare’s Failure Matters

Published April 23, 2012

American Enterprise Institute

Monday’s release of the annual Medicare Trustees’ report seems on the face of things to be a simple exercise in dry accounting – trust fund x will run out of money in year y.  In fact, it’s much more than that.  It’s an annual reminder that we are at risk of violating a moral compact we’ve made with ourselves that no American senior citizen should go without needed medical care simply because of lack of funds.

How we decide to honor that promise without wrecking the rest of the economy through crushing taxes is perhaps the most important question we face as a nation today.

The debate over Medicare reform can get pretty technical, but it essentially boils down to choosing between three competing ideas.

Idea #1 – keep the system going as it is and pay for the growing cost by increasing taxes on most people.

Idea #2 – change Medicare to a program that is still one plan for everyone, but in which more decisions about the level of care and the amount doctors and hospitals earn are made by unelected government officials.

Idea #3 – change Medicare so that every senior can buy his or her own health insurance and get a subsidy from the government to do so, the amount being larger the poorer a senior is.

People who like idea #1 say wealthier people can afford to pay more to keep the current system afloat.  Those who like idea #2 say that efficient, informed government regulation can squeeze out the waste in today’s health care system and give Medicare recipients better quality for lower costs.

People who like idea #3 don’t believe Americans can afford ever-increasing taxes; they also don’t believe government regulators can ever know enough about the entire health care system – and particularly an individual’s health needs – to create the system they envision.  They believe that we can best fulfill our compact by giving seniors money to make the decisions they believe are best for them, and that a truly competitive marketplace will deliver the quality people want at a price they can afford.

Henry Olsen is a senior fellow at the Ethics and Public Policy Center.

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