Proposed new cost sharing and the costs of Medicare

by Joseph P. Newhouse

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Results from the Health Insurance Study, a controlled trial of cost sharing, are described. More initial cost sharing, as has been proposed for the Medicare program, will reduce the costs of the program at each point in time, but will probably not affect its long-run rate of growth very much. It will shift costs from taxpayers to program beneficiaries. Thus, even with more initial cost sharing, Medicare program costs, if nothing else is done, are likely to grow faster than GNP. The United States could accept these cost increases, in which case the question is how best to finance them. Alternatively, it could try to increase competition or regulation. Competition is likely to produce little short-run effect on Medicare program costs; regulation will have unknown effects on health outcomes.

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