Premium Support in Medicare: What It Is and What It Isn’t

Yesterday, House Budget Committee Chairman Paul Ryan (R–WI) unveiled his budget proposal for fiscal year 2012. The transformative proposal would reverse the current trajectory of out-of-control federal spending largely due to the inclusion of a bold proposal to reform the currently unsustainable Medicare program.

Ryan’s approach would change the way the federal government provides for the medical needs of seniors by moving the program to a “premium support” system. Rather than paying directly for medical services, premium support would enable the government to make contributions to the cost of a health plan chosen by the individual themselves from a selection of plans.

Already, mudslinging from the left is in overdrive. Senator Debbie Stabenow (D–MI) said Ryan’s proposal was “pulling the rug out from under seniors,” while House Minority Leader Nancy Pelosi (D–CA) called it “a path to poverty for American’s seniors and children.”

But support for the status quo is a recipe for failure, especially for future generations of seniors. Currently, most beneficiaries must obtain supplemental policies to receive comprehensive coverage under Medicare. Moreover, uncertainties regarding provider reimbursement rates make it difficult to ensure that seniors will have continued access to physicians. And as the population ages and health care costs continue their rapid climb, spending on the program is projected to more than double by 2040. Clearly, change is inevitable.

A recent article from Kaiser Health News (KHN) lays out the details of the Ryan plan, which creates for seniors a system akin to the popular Federal Employee Health Benefits Program (FEHBP), through which Members of Congress and all federal employees receive coverage. KHN explains that under such a system, “Employees and retirees have a variety of options, from catastrophic coverage plans with high deductibles to health maintenance organizations to high-end plans with many choices of doctors. Everyone has a choice of at least 10 fee-for-service plans, but the exact number varies by where an enrollee lives.”

Premium support puts individuals, not government, in charge. Market competition would drive costs down, as insurers would face pressure from the consumer to offer higher value plans that best meet their needs.

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