OPINION:
The new Department of Government Efficiency promises to eliminate waste, fraud and abuse, and everyone seems to want to jump on board. In Congress, there is now a bipartisan DOGE caucus, which just met on Tuesday.
Although President-elect Donald Trump promised not to touch Medicare on the campaign trail, House Republicans recently stated that “everything was on the table,” including Medicare. That is a good thing.
Medicare is one of the largest federal spending programs, making up $874 billion, or 13% of the fiscal 2024 federal budget. DOGE, the informal advisory group led by Elon Musk and Vivek Ramaswamy, must make Medicare reform a priority. If left untouched, Medicare will be unable to pay full benefits by 2036.
Fortunately, policy solutions exist that can help both older Americans and taxpayers. Cracking down on improper payments and reforming health care regulations can help increase health care access while reducing costs. Expanding Medicare Advantage and building on its successes can help protect health care for older adults without straining taxpayers.
Medicare made up of Medicare Part A (hospital care), Medicare Part B (services for doctors and preventive services) and Medicare Part D (prescription drug coverage) and is funded through a payroll tax, taxes on Social Security benefits and premiums paid by Medicare enrollees. But the single largest source of revenue comes from the federal government’s General Fund.
Despite these massive programs, Americans spend more money on health care than any other developed nation but do not have better outcomes. Nearly one-quarter of all health care spending comes from Medicare. In 2022, the Centers for Medicare & Medicaid Services reported that Medicare spending was $900 billion, or 22% of all health care spending.
There is another model, however. Medicare Part C, called Medicare Advantage, allows beneficiaries to enroll in private health plans to receive benefits from parts A and B. It collects revenue from general fund transfers, payroll taxes, premiums paid by beneficiaries and out-of-pocket charges.
Medicare Advantage, or MA, is considered the most successful part of Medicare, offering higher customer satisfaction, lower costs and greater access to coverage than traditional Medicare. One Harvard study also found older Americans enrolled in MA had better health outcomes than those on traditional Medicare.
Because it is a public-private partnership, this is not unexpected. The private sector does things better. Mr. Musk’s SpaceX is doing a better job than NASA could.
Similarly, Medicare costs are growing much faster than private health care spending. In 2023, private insurance spent $6,838 per enrollee while Medicare spent $15,689 per enrollee, more than double the private sector amount. This is caused by Medicare’s fee-for-service model, which pays providers per treatment and may offer incentives for unnecessary treatments. Research from the Paragon Institute also highlighted that overpayments are a major driver of Medicare spending growth.
DOGE has also highlighted the problem of improper payments, sharing a Government Accountability Office report that found improper Medicare payments totaled $51.1 billion in fiscal 2023 — 22% of improper payments across the federal government and the highest of any federal program. To reduce these improper payments, the GAO recommends more stringent enrollment checks and allowing auditors to conduct claim reviews before payments are made.
Other reforms could reduce Medicare costs. For example, unpaid services could be moved to other poverty-focused programs. DOGE could also recommend that Medicare standardize payment rates for routine services, regardless of whether they occur in a doctor’s office or a hospital. Transitioning from a fee-for-service model to a value-based care model — where providers are rewarded for successful treatments rather than service volume — could also bring about savings.
Economists also recommend reducing government subsidies for wealthier beneficiaries by adjusting income thresholds at which means-testing applies, expanding definitions of wealth for means-testing, and basing Medicare Part A premiums on income.
Ultimately, the best advice for DOGE to give the incoming Trump administration is to enhance Medicare Advantage. A challenge MA faces is that the sickest patients may switch to traditional Medicare in their final years to access coverage not provided by MA. Regulatory reforms to expand access to specialists and reduce micromanagement of MA plans would improve access to care. Adjusting risk-based payments between MA and traditional Medicare would also give insurance companies incentive to retain sicker patients.
By improving on Medicare Advantage and making the necessary reforms to traditional Medicare, older Americans will enjoy expanding choice and health care options while reducing stress on taxpayers.
• Thomas Savidge is a research fellow at the American Institute for Economic Research. Follow him on X @thomas_savidge.
