There is a Better Way: Make Medicaid and Medicare More Like Social Security

There is a Better Way: Make Medicaid and

Medicare More Like Social Security

CHARLES SILVER AND DAVID A. HYMAN*

ABSTRACT

The Medicare and Medicaid programs are not serving the needs of their tar-

get populations as well as they could. Democrats believe that Medicaid can be

improved with more money and stricter federal regulation, and that Medicare

can be improved by allowing it to negotiate drug prices. Republicans believe

Medicaid can be improved by delegating responsibility to the states and adding

work requirements, and that Medicare can be improved by moving more people

into Medicare Advantage.

This Article proposes a very different strategy. Instead of tinkering with

Medicare and Medicaid, this Article argues for remodeling both programs

along the lines of Social Security, the Earned Income Tax Credit, and the

Child Tax Credit. These programs do not provide housing, food, or other

goods and services that benef‌iciaries need. They give benef‌iciaries money and

let them decide how to spend it themselves. By using a similar approach for

Medicare and Medicaid (i.e., by giving benef‌iciaries an insurance policy cov-

ering catastrophes plus money either in the form of cold hard cash or a re-

stricted spending account), both programs would allow benef‌iciaries to

purchase the goods and services that, in their judgment, will help them most.

The remodeled programs would also unleash the bargain-hunting skills of

more than 100 million Americans, helping to drive down costs and minimize

fraud.

TABLE OF CONTENTS

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150

I. IMPACT OF MEDICAID AND SIMILAR PROGRAMS ON HEALTH . . . . . . 153

II. THE IMPACT OF POVERTY ON HEALTH . . . . . . . . . . . . . . . . . . . . . . 159

III. THE IMPACT OF SOCIAL WELFARE PROGRAMS ON POVERTY . . . . . . 162

* Silver holds the Roy W. and and Eugenia C. McDonald Endowed Chair in Civil Procedure, School

of Law, University of Texas at Austin, and is an Adjunct Scholar at the Cato Institute. Hyman is

Professor, Georgetown University Law Center, and an Adjunct Scholar at the Cato Institute. We

appreciate the comments and feedback we received when this paper was presented at Loyola University.

© 2020, Charles Silver & David A. Hyman.

149

IV. OTHER ADVANTAGES AND DISADVANTAGES OF CASH

TRANSFERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172

CONCLUSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177

INTRODUCTION

In Overcharged: Why Americans Pay Too Much For Health Care,

1

we pro-

posed that, rather than pay providers to treat benef‌iciaries, Medicare and

Medicaid should give benef‌iciaries money and let them decide how to spend it.

The proposal, which would remake Medicare and Medicaid along the lines of

Social Security, the Earned Income Tax Credit (EITC), and the Child Tax Credit

(CTC), has a lot going for it. First, cash transfers will directly enhance benef‌icia-

ries’ welfare by enabling them to buy the goods and services they value the most

(which might be, but need not be, the medical treatments covered by Medicare

and Medicaid). Second, consumer-directed purchasing will transform the health

care sector by making providers responsible to patients rather than third-party

payors. Almost instantly, the health care marketplace will become more price-

and quality-transparent as providers suddenly f‌ind it in their interest to provide

consumers with better information. Third, for the same reason, providers will f‌ind

it advantageous to reduce prices and improve quality, and to innovate in the deliv-

ery of medical treatments by bundling goods and services in patient-friendly

ways, offering convenient hours and locations, and backing up their services with

warranties. Fourth, “surprise” medical bills, which approximately ten percent of

the adult non-elderly population report receiving in the past year, will disappear.

2

Fifth, health care fraud will decline dramatically. At present, wrongdoers extract

tens of billions of dollars a year from Medicare and Medicaid by billing for treat-

ments that are unnecessary, over-priced, up-coded, or not even provided.

3

When

patients control the money, wrongdoers will no longer be able to game the pay-

ment system.

4

The volume of services that are ineffective or unnecessary will

1. CHARLES SILVER & DAVID A. HYMAN, OVERCHARGED: WHY AMERICANS PAY TOO MUCH FOR

HEALTH CARE (2018).

2. See Ashley Kirzinfger et al., Kaiser Health Tracking Poll - Late Summer 2018: The Election, Pre-

Existing Conditions, and Surprises on Medical Bills, KAISER FAM. FOUND. (Sept. 5, 2018), https://

www.kff.org/health-costs/poll-f‌inding/kaiser-health-tracking-poll-late-summer-2018-the-election-pre-

existing-conditions-and-surprises-on-medical-bills/ [https://perma.cc/XH2S-7QFV]. The same survey

indicates that 40 percent of those polled received an “unexpected” medical bill during the prior year. Id.

These terms are not self-def‌ining; we think it likely that many of the “unexpected” bills were “surprise”

medical bills.

3. See generally U.S. DEP’T OF HEALTH & HUM. SERVS. & DEP’T OF JUSTICE, HEALTH CARE FRAUD

AND ABUSE CONTROL PROGRAM ANNUAL REPORT FOR FISCAL YEAR 2017 (2018), https://oig.hhs.gov/

publications/docs/hcfac/FY2017-hcfac.pdf [https://perma.cc/BU6W-3WYG] (presenting examples of

health care frauds).

4. See generally SILVER & HYMAN, supra note 1 (providing examples of billing-related misconduct,

including up-coding, absurd prices, and charging for services that were not delivered).

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