My last post emphsizes that any solution to our nation’s long term debt problem must include reining in the cost of American healthcare. There are two major drivers to this problem as is made clear by a new report from the American Enterprise Institute, “Improving Health and Health Care: An Agenda for Reform.”
First of all, out-of-pocket consumer spending on healthcare has been steadily declining for many years. The less we pay directly for our own healthcare, the less incentive we have to control costs.
Secondly, the cost of healthcare entitlement spending, for Medicare and Medicaid , is growing rapidly as a percentage of GDP. Such a rapid increase is unsustainable and must be curtailed. Here is what the AEI report recommends for doing this.
- Medicaid. It serves two groups of people: 1) able bodied adults and their children and 2) the disabled and elderly. The federal government should make fixed, per-capita payments to the states based on historical spending patterns for these two groups. The able-bodied adults and children would get the same (refundable) federal tax credits as everyone else supplemented by Medicaid payments. The states would be totally responsible for the second group.
- Medicare. The current system would be gradually migrated to a premium support system which would provide enough to pay for a choice of competing insurance options. The eligibility age would gradually rise to 67, consistent with Social Security.
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- Health Savings Accounts. HSAs are tax-preferred vehicles for saving for medical expenses until the (perhaps high) deductible amount is reached. Their use is growing rapidly. A one-time $1000 federal tax credit for establishing an HSA would increase their number even more. Their use should be expanded into Medicaid and Medicare as well.
Such reforms as these can significantly lower the cost of providing healthcare to the poor, the elderly and everyone else as well. If we don’t do something along these lines, we will eventually end up with a government run single payer system much to our detriment.
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