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  • Annals of the American Academy of Political and Social Science

Economic Principles for Medicare Reform

By: Amitabh Chandra and Craig Garthwaite
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Abstract

In this article, we develop an economic framework for Medicare reform that highlights trade-offs that reform proposals should grapple with but often ignore. Central to our argument is a tension in administratively set prices, which may improve short-term efficiency but do so at the expense of dynamic efficiency (slowing innovations in new treatments). The smaller the Medicare program is relative to the commercial market, the less important this is; but in a world where there are no market prices or the private sector is very small, the task of setting prices that are dynamically correct becomes more complex. Reforming Medicare should focus on greater incentives to increase competition between Medicare Advantage plans, which necessitates a role for government in ensuring competition; premium support; less use of regulated prices; and less appetite for countless “pay for performance” schemes. We apply this framework to evaluate Medicare for All proposals.

Keywords

Medicare; Value-based Care; Health Care Reform; Markets In Health Care; Health Care and Treatment; Value; Governing Rules, Regulations, and Reforms

Citation

Chandra, Amitabh, and Craig Garthwaite. "Economic Principles for Medicare Reform." Annals of the American Academy of Political and Social Science 686, no. 1 (November 2019): 63 – 92.
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About The Author

Amitabh Chandra

Technology and Operations Management
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More from the Authors
  • Vertex and the Cure for Type 1 Diabetes By: Amitabh Chandra, William J Anderson and Silvia Mare
  • Achieving Universal Health Insurance Coverage in the United States: Addressing Market Failures or Providing a Social Floor? By: Katherine Baicker, Amitabh Chandra and Mark Shepard
  • Regulatory Incentives for Innovation: The FDA's Breakthrough Therapy Designation By: Amitabh Chandra, Jennifer Kao, Kathleen Miller and Ariel D. Stern
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