Government Intervention Analysis: Medicare

Background 

Medicare is an example of a government healthcare intervention that the US federal government runs. The program targets people above sixty-five years selected younger individuals with disabilities, and citizens with End-Stage Renal Disease (ESRD) (Medicare.gov, n.d.). Medicare has 4 plans, each targeted differently from the rest. These plans are Part A, Part B, Part C (Medicare Advantage), and Part D. Medicare provides beneficiaries with a wide array of coverage options. According to the National Academy of Social Insurance (n.d.), Medicare was established in 1965 to provide healthcare coverage while also boosting financial security for the stated target groups. The federal government realized that the above groups, especially older Americans, were not adequately served in an insurance market that focused on underemployment. The program has remained stable, as evidenced by its modest expansion in both coverage and eligibility. 

Debates about government interventions against market-based interventions are rife when it comes to discussion about Medicare. According to Arno and Caper (2020), market-based solutions driven by large corporations are characterized not only by capitalism failure but also by lack of adequate policies to check their excesses. Government interventions are ideal like Medicare ideal because they lower healthcare costs due to government incentives and subsidies. As mentioned above about market failures that led to the establishment of Medicare, one acknowledges that the program has significantly and positively impacted the US healthcare sector. According to the Centers for Medicare and Medicaid Services (2021), there were approximately 61.5 million subscribers in 2019, with 34.3 million benefitting from Medicare Part A and B, the two most subscribed plans. The following charts indicate utilization for each part of Medicare in 2019. 

Image 1: People Served Under Medicare Cover in 2019 

Source: Centers for Medicare and Medicaid Services 

As a government policy that targets a sizeable group of the US population, externalities associated with Medicare have diffuse consequences. According to Chen et al. (2020), Medicare accounts for approximately 20 percent of medical expenditure in the US, in conjunction with being the primary payers for many treatment kinds. In their research, the scholars establish that Medicare results in significant changes in provider behavior. In their study, Chen et al. (2020) focused on Care for Joint Replacement (CJR), whereby they noted several externalities and unintended impacts of Medicare. For example, among the research's key findings was a 22 percent decrease in discharges, which understated the effect of the CJR program. Further, the in-patient rehabilitation facilities, which cost the taxpayer about $8 billion annually, declined by 44 percent for Medicare Part C subscribers. As a result, insurance providers attached to the Medicare program benefit immensely at the cost of taxpayers. Due to such externalities, the program has significant spillovers for surgical procedures not under the CJR program. Consequently, the intended beneficiaries do not benefit from the program as projected. Such externalities form areas of weakness in the Medicare program. 

Medicare’s funding is mainly from general revenues and employment taxes. Beneficiary premiums are the other significant financing source for the program. According to the Centers for Medicare and Medicaid Services (2019), Medicare spending increased by 6.7 percent in 2019 to reach about $799 billion in 2019, 21 percent of national health spending. Looking at these figures, one acknowledges that Medicare as a share of GDP is increasing. Further, Cubanski et al. (2019) note that over the long-term, which is about ten years and beyond, Medicare outlays will grow more quickly than the GDP. This will be due to the increasing aged population in the US and speedier growth in healthcare. Cubanski et al. (2019) project that Medicare's costs will reach 6 percent of GDP in 2049. Thus, these research experts in healthcare economics opine that creating more robust policies to manage and guide the Medicare program is essential if it has to be continued. The experts note that the program is a success since it has managed to meet its objective, and more people are subscribing to the various plans. 

Conclusion and Recommendation 

As the size of population groups targeted under the Medicare program increase, especially the number of older people, more people are subscribing to its various plans. Further, despite the multiple challenges synonymous with the program, it has rapidly grown over the years, covering more people previously faced by healthcare and financial disparities. Due to this, the program should continue but with more robust governing policies than the current ones. Such policies will check the externalities associated with the program. 

References 

Arno, P., & Caper, P. (2020).  Medicare For All: The Social Transformation Of US Health Care . Healthaffairs.org. Retrieved 22 March 2021, from https://www.healthaffairs.org/do/10.1377/hblog20200319.920962/full/ . 

Centers for Medicare and Medicaid Services. (2019). NHE Fact Sheet. Center for Medicare and Medicaid Services. https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NHE-Fact-Sheet#:~:text=Historical%20NHE%2C%202019%3A,16%20percent%20of%20total%20NHE . 

Centers for Medicare and Medicaid Services. (2021). CMS Fast Facts . Centers for Medicare and Medicaid Services. https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/CMS-Fast-Facts 

Chen, A., Richards, M., Whaley, C. M., & Zhao, X. (2020). The Extent of Externalities From Medicare Payment Policy.  Available at SSRN 3667916 . 

Cubanski, J., Neuman, T., & Freed, M. (2016). The facts on Medicare spending and financing.  The Henry J. Kaiser Family Foundation . 

Medicare.gov. (n.d.). What's Medicare? Medicare.gov. https://www.medicare.gov/what-medicare-covers/your-medicare-coverage-choices/whats-medicare 

National Academy of Social Insurance (n.d.). The History of Medicare . National Academy of Social Insurance. https://www.nasi.org/learn/medicare/history-medicare#:~:text=The%20Medicare%20program%20was%20signed,by%20employment%2Dlinked%20group%20coverage.