Medicare’s stark financial problems are well known but worth repeating often. Promised benefits are expected to exceed dedicated financing for the program by $36 trillion over the next seventy-five years (measured in present value terms). Between 1975 and 2005, annual program spending growth per beneficiary outpaced per capita GDP growth by an average of 2.4 percentage points annually.

In the latest Weekly Standard, I discuss Medicare’s immense financing challenge, covering fairly familiar ground for those familiar with the program. But I also argue that a central assumption of conventional health policy thinking in Washington is wrong. That is, most analysts argue that Medicare cost escalation is simply a function of system-wide cost pressures, and that Medicare spending growth will slow only with effective health care reform covering all payers.

This kind of thinking ignores Medicare’s dominant role in today’s marketplace. Medicare fee-for-service insurance is the number one reason today’s delivery system is fragmented, disorganized, and inefficient. Reforming Medicare, therefore, is central to encouraging more efficient hospital and physician arrangements. In other words, to slow health care costs down for everyone, a crucial first step is reforming how Medicare buys health care services.

The full article can be found here.