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How Much Should Grandma Pay?

Jan 14, 2011 • Demand, Supply, and Markets, Economic Debates, Government, Thinking Economically • 177 Views    No Comments

When your Grandma gets her yearly physical, the doctor gets a check from the government. Did you ever wonder, though, who decides how much?

Because she had to sign up for Medicare at 65, the market did not decide the price and neither did her doctor. Instead, The Wall Street Journal tells us it was RUC.

RUC????

The Relative Value Scale Update Committee

Composed of 29 physicians, RUC  provides a suggested price list to the federal commission that creates the Medicare Physician Fee Schedule. The WSJ says that 90% of the recommendations are followed. 

Rather than the market, a committee selects the prices that convey information and incentives. Your opinion?

The Economic Lesson

Why should we care about Grandma and the doctor? Because Medicare spending now is close to 12% of the federal budget. With 30 million or so baby boomers expected to pour into Medicare during the next 10 years, and 40 more million close behind, spending will skyrocket.

What to do? Called “The Moment of Truth,” President Obama’s deficit commission report suggests that instead of pursuing “phantom savings,” Congress should implement “common-sense reforms to physician payments, cost-sharing, malpractice law, prescription drug costs, government-subsidized medical education, and other sources.” You can look at the report here.

 

 

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