Does One Medicare Fit All? The Economics of Uniform Health Insurance Benefits

Mark Shepard, Katherine Baicker, Jonathan Skinner

Chapter in NBER book Tax Policy and the Economy, Volume 34 (2020), Robert A. Moffitt, editor
Conference held September 26, 2019
Published in June 2020 by University of Chicago Press
© 2020 by the National Bureau of Economic Research
in The Tax Policy and the Economy Series

There is increasing interest in expanding Medicare health insurance coverage in the United States, but it is not clear whether the current program is the right foundation on which to build. Traditional Medicare covers a uniform set of benefits for all income groups and provides more generous access to providers and new treatments than public programs in other developed countries. We develop an economic framework to assess the efficiency and equity trade-offs involved with reforming this generous uniform structure. We argue that three major shifts make a uniform design less efficient today than when Medicare began in 1965. First, rising income inequality makes it more difficult to design a single plan that serves the needs of both higher- and lower-income people. Second, the dramatic expansion of expensive medical technology means that a generous program increasingly crowds out other public programs valued by the poor and middle class. Finally, as medical spending rises, the tax financing of the system creates mounting economic costs and increasingly untenable policy constraints. These forces motivate reforms that shift toward a more basic public benefit that individuals can “top up” with private spending. If combined with an increase in other progressive transfers, such a reform could improve efficiency and reduce public spending while benefiting low-income populations.

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Document Object Identifier (DOI): 10.1086/708168

This chapter first appeared as NBER working paper w26472, Does One Medicare Fit All? The Economics of Uniform Health Insurance Benefits, Mark Shepard, Katherine Baicker, Jonathan S. Skinner
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