Who Should Pay for Medicare? [Hardcover]

Daniel N. Shaviro (Author)

Book Description

Publication Date: January 1, 2004 | ISBN-10: 0226750760 | ISBN-13: 978-0226750767 | Edition: 1

This book offers an accessible overview of how Medicare operates as a fiscal system.

Editorial Reviews

From The New England Journal of Medicine

Each year the Trustees of Medicare report on the current status and projected condition of the Medicare trust funds for the next 75 years. Usually, such events are hardly newsworthy, but this year's report was different. Program outlays rose so dramatically that the projected date of exhaustion of the Part A Trust Fund moved forward seven years, from 2026 to 2019. Correcting such an imbalance will not be easy. The trustees cite two options that demonstrate the severity of the problem: either increase the program's revenue by 108 percent or cut its outlays by 48 percent. Add to this funding crisis the Part B program and the new prescription-drug benefit that could cost $400 billion over 10 years, and the time is ripe for a frank discussion of Medicare's financing. For these reasons, Daniel Shaviro's new book comes at a particularly welcome time. Shaviro places these actuarial forecasts in an appropriate context from the outset. He notes in chapter 2 that although "we normally think of trust funds as actually paying for things . . . the Medicare trust funds are quite different." They neither hold assets nor create a binding legal obligation to pay anything to anyone, including Medicare enrollees. The trust-fund balance could be changed at any time -- "for example, by Congress's announcing a trillion-dollar deposit in the Part A Trust Fund -- without improving, or even necessarily affecting, the actual financing of Medicare or any other government program." Thus, the chief significance of the trust funds is political -- as a summary of the net inflow and outflow to Medicare. It is this type of analysis that makes Shaviro's book so refreshing and unique. Readers who are expecting a comprehensive review of how Medicare reimburses health care providers, and what should be done to reform the payment process, will admittedly be disappointed. Shaviro is a public economist who teaches in a law school, rather than a traditional health economist, so he does not focus on payment issues. Rather, he offers a view of Medicare as a public program like Social Security and welfare -- and that means he is interested in the economic arguments about Medicare's existence and about who is likely to benefit from its services. Answering these questions also provides insight into how the program should be financed. Shaviro views Medicare as a collection of public programs designed to meet various social objectives. First, it is a compulsory insurance program that can be justified on paternalistic grounds -- we want to make sure people save for health insurance when they are older -- and because even if people put money away to pay for insurance when they turn 65, the private market would not offer insurance to all the people who wanted it. Second, Medicare serves to redistribute wealth within the society -- for example, from young to old, from low-cost geographic areas to high-cost areas, and from the healthy to the sick. In some cases, these transfers raise some difficult ethical questions. For example, if a person spends her whole life eating right, not smoking, and exercising, should she be asked to subsidize health care for people who do not take care of themselves? Medicare also transfers money across generations, and Shaviro points out the likely scenario of the cost of ever-more-expensive health care being passed from generation to generation. Shaviro makes all these points in a manner that is free of economic jargon, and he uses lively analogies to simplify complicated financing issues. These stories include the saga of the Clown family, who run a grocery store that is losing money and who therefore decide to pay themselves higher salaries. Each chapter includes a useful summary of the salient points, a feature that allows readers to browse for topics of interest. Ultimately, Shaviro suggests several policy changes that could improve the solvency of Medicare and provide greater incentives for beneficiaries to take care of themselves and use care more efficiently. Many of these proposals -- including raising copayments, discouraging the purchase of Medigap insurance, and hiking premiums -- have been discussed in other contexts. Shaviro's contribution is to point out that these measures could be undertaken in such a way that people's Medicare bills would reflect their income. In part, this proposal is motivated by Shaviro's view that Medicare is not progressive enough. His argument is that since wealthier Americans use more medical services during their retirement years (in part, because they live longer), they get more benefit from Medicare. But they also pay more into the system. According to a recent report from the National Bureau of Economic Research, high-school dropouts get twice as much value from Medicare as they put in, whereas college graduates get only about 15 percent more. Low-income people benefit even more, since before the enactment of Medicare, it was mainly the poor who were uninsured. Shaviro also proposes the use of a value-added tax (similar to a sales tax) that would implicitly ask people who consumed more to pay more to finance Medicare. Such a tax obviously would not go over well in the current political climate. However, as "a commentator with academic tenure and no political aspirations," Shaviro is free to make such suggestions, and the reader will benefit from his fresh and entertaining perspective on the Medicare predicament. Dana P. Goldman, Ph.D.
Copyright © 2004 Massachusetts Medical Society. All rights reserved. The New England Journal of Medicine is a registered trademark of the MMS.

From the Inside Flap

Good news first? The good news is that Americans today are living longer, in part because of continual advances in healthcare. But the bad news is that with our aging population larger than ever before, nothing is being done to ensure that we can continue to afford the increasing costs of care. How Medicare—with the Bush administration's reforms and a slumping economy—will meet the needs of its recipients without adequate financing is among the most pressing issues facing this country today.

Daniel N. Shaviro sees the future of our national healthcare system as hinging on the issue of funding. The author of books on the economic issues surrounding Social Security and budget deficits, Shaviro is a skilled guide for anyone seeking to understand the financial aspects of government programs. Who Should Pay for Medicare? offers an accessible overview of how Medicare operates as a fiscal system. Discussions of Medicare reform often focus on the expansion of program treatment choices but not on the question of who should pay for Medicare's services. Shaviro's book addresses this critical issue, examining the underanalyzed dynamics of the significant funding gap facing Medicare. He gives a balanced, nonpartisan evaluation of various reform alternatives—considering everything from the creation of new benefits in this fiscal crunch to tax cuts to the demographic pressures we face and the issues this will raise when future generations have to pay for the care of today's seniors.

Who Should Pay for Medicare? speaks to seniors who feel entitled to expanded coverage, younger people who wonder what to expect from the government when they retire, and Washington policy makers who need an indispensable guidebook to Medicare's future.

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Product Details

• Hardcover: 288 pages
• Publisher: Aei Press; 1 edition (January 1, 2004)
• Language: English
• ISBN-10: 0226750760
• ISBN-13: 978-0226750767
• Product Dimensions: 9.3 x 6.4 x 0.8 inches
• Shipping Weight: 14.1 ounces
• Average Customer Review: 5.0 out of 5 stars  See all reviews (1 customer review)
• Amazon Best Sellers Rank: #641,074 in Books (See Top 100 in Books)

Customer Reviews

Most Helpful Customer Reviews

5.0 out of 5 stars Quick & Easy Read...but informative, November 17, 2005

By 

C. K. Dark (Washington D.C.) - See all my reviews
(REAL NAME)   

This review is from: Who Should Pay for Medicare? (Hardcover)

If you didn't realize Medicare was a pyramid scheme, you will after you finish this book. I love Medicare (and big government too) but something has got to change if it is goign to be around when I'm old enough to use it. Specifically, we need to phase-out intergenerational transfers.

But putting my own politics aside...

This book makes this complicated subject easy to understand for the beginner in health policy or for other interested people. It discusses different ways in which the growth of Medicare can be limited versus ways to generate revenue to cover the costs.