Medicare and Vouchers: From Someone Who Knows

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6348660073_77b34e47c9_zBy Jean Hamilton, PhD, MSW

As a woman who is solidly middle-aged, I feel the aches and pains of an aging body and know that my years being able to work full-time might be counted on two hands.  So, I wonder what kind of health care will I need when I retire and will I be able to afford it? That question makes President Elect Donald Trump’s pick for Secretary of Health and Human Services, Tom Price, of particular concern since he will be in charge of the Medicare system. Medicare is the government health insurance program for American citizens and permanent residents who are eligible at age 65 years or earlier with certain disabilities. Medicare covers over 50 million people.

In a recent N&O article, Trump stated that “[Tom Price] … will bring affordable and accessible healthcare to every American.”  However, the same article said that Price, who is a congressman from Georgia, “led GOP efforts to transform Medicare into a voucher-like system”.  Whoa! Will a voucher system make healthcare affordable and accessible?

Well, I am not only a middle-aged woman, but I have a background in health economics and social work. So, here is how I break things down.

A person has insurance to protect against a loss that would be very expensive to pay directly out of pocket. An insurance company collects money (premiums) from lots of people and pays out benefits when a loss occurs. There is an assumption that not everyone is going to need the loss covered at the same time. This collective sharing of the risk is called risk pooling and is a benefit of insurance that decreases the risk to any one person (or family).

Health insurance, especially for older people, is challenging because people usually need more health care as they age and so many people may need losses covered at the same time.  In that situation, premiums have to be high enough and grow to cover the rising health care needs.  However, the person who is retired or disabled, may face loss of employee health insurance, lower income, and higher health needs. Medicare came into existence in 1965 to address this problem. (The Affordable Care Act/Obamacare addressed the more general problem of people of all ages not getting health care because of lack of health insurance.) Having one government program to provide health insurance makes sense because the government looks at the costs and benefits for the whole society and can spread the risks across a larger pool of people than many small insurance companies.

So, how does a voucher-like system differ from the current system? Currently, Medicare is financed through premiums and payroll taxes paid by working people and employers. In traditional Medicare, the government collects premiums from enrollees and makes payments directly to health providers. With Medicare Advantage, the government pays a fixed amount per month to health insurance companies who pay the health care providers.  In both models, enrollees may also have to share in the cost of the health service depending on the health plan.

The voucher-like system would provide a check to an enrollee that could be used to pay the premium to a private company that would offer different health plans. If there were a plan that paid higher premiums, the enrollee would have to pay the difference; if there was a cheaper plan, the enrollee might keep the difference.

This may be sounding good, a check from the government!  But the key question is what happens if the health plan that would cover the care I need costs a lot more than the amount of the voucher?  Or what happens if the private insurance company goes out of business because it has too many sick people and cannot make a profit? In the first case, I may face paying more than I can afford and not have access to the health care I need. In the second case I have may have to change my health care providers and not have access to the health care I need. So why move from the current system?

One main rationale for vouchers is to contain the cost of Medicare spending by the government. And the most direct way is if the voucher amount is held steady even as health care needs and costs increase.  So as I see it, a voucher system shifts the risk to an individual at a time when that individual is most vulnerable and the system moves away from the large risk pool. So, my response to Tom Price is that the Medicare system may need reform but a voucher system is heading in the wrong direction in making healthcare more affordable and accessible.  




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