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The Hazards of Health-Care Reform

Health-care reform is likely to be slow and painful.

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With the recent wrangling in Congress to stave off a scheduled 10.6% cut in Medicare reimbursements to doctors, we have seen a good example of exactly why health-care reform--which politicians and practitioners all agree is desperately needed--will be so very difficult to formulate and implement.

Due to the sustainable growth rate formula that Medicare uses to determine adjustments to the physician reimbursement rate, the reimbursement schedule is set to automatically adjust depending on whether actual spending came in above or below targeted spending. This approach is very similar to what any consumer does when working with a budget--if actual spending is higher than what was budgeted, the individual can curtail future spending in that area until the total spending matches what was budgeted.

Debbie Wang does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.