Health Insurance and Medicare

1160 words 5 pages

Medicare was established in 1965 to guarantee elderly Americans access to quality health care regardless of their financial circumstances. Medicare spends more than $200 billion a year and it will increase, partly because greater numbers of Americans will become eligible for coverage when the baby boomers begin to turn sixty-five after 2010. According to the article The Political Economy of Medicare by Bruce C. Vladeck, to understand the political economy of Medicare it is necessary to view it from three perspectives. The first one is Medicare as redistributive politics, second is Medicare as special-interest politics, and third is Medicare as distributive politics. In the next few paragraphs I will focus on economic analysis
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By Medicare contractors Vladeck refers to private insurance companies that perform the basic administrative tasks of the Medicare fee-for-service program. A system financed primarily through retrospective fee-for-service insurance reimbursement is open-ended. Providers are able to pass through all their costs, no matter how inefficient the production of services. There is no incentive for providers to search for more efficient methods of production, and patients have no incentive to for providers who offer lower prices. Vladeck claims that Medicare contractors, together with hospitals, doctors, and HMOs have a major stake in Medicare policy, and ultimately behave as expected in political system. In the discussion about the Medicare as distributive politics, Vladeck emphasizes the fact that the “geographic distribution of Medicare dollars has become a matter of increasing attention.” The biggest example of Medicare’s allocation of its dollars comes in treatment of payment rates for capitated plans in the Balance Budget Act, of 1997 (BBA). Capitation itself is a payment method providing a fixed, per capita payment to providers for a specified medical benefits package. Providers are required to treat a well-defined population for a fixed sum of money paid in advance without regard to the number or nature of service provided to each person. Vladeck claims that there is no


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