Evidence suggests that eliminating first-dollar coveragehealthcare coverage without a deductiblecan significantly affect the demand for care in the outpatient setting.
The villain is Medigap insurance, which essentially removes all deductibles and copays, Medicare's primary cost-control mechanisms. By doing so, it opens the floodgates for profligate healthcare spending. Interestingly, the authors cite a RAND study that found no significant difference in health outcomes relative to high or low spending patterns.
Although imposing No-First-Dollar Medicare would have an "immediate and lasting impact on the level of healthcare expenditures," the authors write, they also recognize that in order to truly address the systemic ills of Medicare, "we must find a way for the working generation to pay for most of their retirement consumption while they are still working."
To that end, the authors revisit a reform they proposed in an earlier book (The Economics of Medicare Reform, 2000), ie, prepaying Medicare. In its simplest form, prepaid health insurance involves paying an annual premium throughout one's pre-retirement years that secures healthcare coverage during retirement.
"Prepaying Medicare can also result in higher national saving than does the current generational-transfer financing arrangement," the authors write, and, combined with a sound cost-sharing plan, prepayment would lead to a better healthcare market "directed more by consumer choices and less by other means of allocating the level and quantity of care consumers receive."
Rettenmaier and Saving give us a timely book rendered with great clarity; it speaks to the underlying economics of human nature and offers sound advice. The Diagnosis and Treatment of Medicare is a must read for anyone interested in the looming Medicare crisis and should be required reading for the multitude of people currently running for president and for all 535 members of Congress.
[Editor's note: In 2006, President Bush appointed Dr. Saving for a second term as a trustee of the Social Security and Medicare Trust Funds.]