The federal government originally paid directly for all Medicare services, leading medical providers to battle constantly for advantageous payment arrangements. Yet, over recent years, beneficiaries have increasingly opted to receive benefits administered by private insurers. This has depoliticized procurement, yielding better healthcare benefits and lower costs for enrollees. Now that a majority of beneficiaries are opting for privately managed plans for the first time, Medicare may gain from increased insulation from attempts by healthcare lobbyists to inflate its costs.
The Congressional Budget Office projects that the rising cost of Medicare, and the debt interest payments resulting from it, is the primary driver of the federal government’s long-term fiscal deficit. Spending on Medicare exceeded that on national defense for the first time in 2020; and CBO estimates that current Medicare commitments will cost $1.9 trillion in 2032 – twice the level of spending on defense.
The cost of Medicare has been a problem since the program was launched. To secure the participation of hospitals and physicians, the federal government initially reimbursed them for whatever broadly-defined expenses they incurred delivering care to eligible beneficiaries – an arrangement which led to a rapid increase in the cost of services delivered. Over the past few decades, Congress has repeatedly acted to rein in Medicare fees, but the volume of services delivered has continued to grow unchecked, without regard to their cost or effectiveness.
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Chris Pope is a senior fellow at the Manhattan Institute. Follow him on Twitter here.
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