Can Medicare be fixed?

The cost of providing health insurance to 47 million elderly and disabled Americans through the Medicare program has been taking up a growing portion of the national budget.

It’s not clear if this is caused by beneficiaries using more services, new high-cost treatments, a higher rate of inflation in health care, the provision of unnecessary procedures or outright fraud. It’s likely to be a combination of all of these factors.

Term after term, Congress pokes at the problem by cutting payments to program providers, which they typically reverse as the deadline for the reduction approaches.

Congress has been unable to meaningfully reform the program. In 2003 it did expand Medicare to include broader coverage for prescription drugs, although it failed to fund this addition. Recent rumblings from Washington about reforming the payment method for the program sound promising, though. George Huang, a municipal analyst at Wells Fargo, wrote in a note distributed today:

One idea quickly gaining political currency as a means to rein in long-term federal healthcare spending is the concept of “Medicare premium support.” Under a “free market” premium support approach, each beneficiary would receive a capped amount of dollars (based on a regionally adjusted average cost). He/she would have the flexibility to purchase any qualified commercial health insurance plan that provides coverage of a standard set of healthcare services. Republicans favor this approach because it partly privatizes the Medicare program. Premium support also effectively shifts the program from a defined benefit entitlement program to a defined contribution plan.

Jon Stewart dives into raterville

The Daily Show
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Jon Stewart’s Daily Show interview with Columbia law professor John Coffee is great. To have credit rating agencies discussed on a popular national comedy show is fantastic. The more the public knows about these powerful agencies, the better.

I generally agree with Professor Coffee but disagree with his statement that raters were the primary culprits in the financial crisis. The investment banks that created the subprime dreck and pimped the agencies to assign AAA ratings — they are the main culprits. Raters were just well-paid handmaidens to the banks which packaged mortgages. Banks also made the most profit from creating the crisis. He does identify investment banks as bad actors later in the video. Overall, an impressive performance by Professor Coffee.

I’ll write more about Professor Coffee and his adoption of my proposal for “equilivant disclosure” for bond issuers. This is the real solution to our credit rating problems. The lack of equal information flow to the ten SEC recognized raters is the true reason that S&P, Moody’s and Fitch control the ratings business.

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