IF IT DOESN'T COME OUT OF MY POCKET IT ISN'T WASTE:

What Paul Ryan's Critics Don't Know About Health Economics: A premium-support system would create the right incentives for cost cutting without putting undue burdens on seniors. (ALAIN ENTHOVEN, 6/03/11, WSJ)

It's clear that Medicare-spending growth must be curtailed and eventually limited to the growth rate of GDP—if not below. The big question now is how to do it. Unfortunately, the debate on Capitol Hill and in the media is too often fueled by partisan fear mongering instead of a thoughtful examination of the facts.

Health care in America is extremely wasteful. A 2005 report by the National Academy of Engineering and the Institute of Medicine found that 30-40 cents of every dollar spent on health care are spent on costs associated with "overuse, underuse, misuse, duplication, system failures, unnecessary repetition, poor communication, and inefficiency." Medicare is especially vulnerable to waste, fraud and abuse.

No amount of price cutting or central-government dictates will mitigate these problems. Their cure requires detailed local knowledge, incentives and fundamental organizational change so that curing them is in the interest of providers and patients.

At the root of the waste and excess is Medicare's open-ended fee-for-service system, which pays health-care providers for doing more and more costly services, whether or not they're in the patients' best interests. [...]

A better way to encourage accountable care is the "premium-support" model proposed by House Budget Committee Chairman Paul Ryan, among others. This is a managed competition model in which government would make a defined contribution and beneficiaries would have a choice from a variety of health plans with no discrimination based on health status. Standard coverage contracts would make comparisons possible for ordinary people. Competition would drive health plans to innovate in ways that cut waste and improve quality. And the use of exchanges would drastically reduce marketing costs, so insurance companies would not be taking 20% off the top, as is currently the norm.

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