Medicare Proposals Are A Case Of Too Good To Be True
There is a well-founded principle of consumer protection that says if something sounds too good to be true it probably is.
Medicare beneficiaries need to keep that in mind as Congress continues to debate proposals to establish a Medicare prescription drug benefit and expand use of managed care systems such as preferred provider organizations.
Unless Congress makes significant changes in the proposals so that they function more like true insurance programs, the promises may indeed prove to good to be true.
A primary example of the problem involves the prescription drug benefit, a concept that has broad political support. Under the proposals currently on the table, Medicare beneficiaries would be able to purchase subsidized prescription drug coverage from private insurers.
The program would be entirely voluntary, with beneficiaries being able to enter or exit the program at will.
Unfortunately, this is too good to be true. As currently outlined, the proposal would lead to the basic insurance problem of adverse selection.
Beneficiaries who know they will have high prescription drug costs will enter the program, others will not. There will be no possibility of effective risk-spreading. As a result, premiums for the drug benefit are likely to be so high as to be unaffordable for many senior citizens.
Moreover, it is highly unlikely that many private insurance companies would want to participate in a program that is so structurally flawed.