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Medicare Reform and Premium Support: Controversy and Discussion to Reduce Costs and Deficits


The hotly debated proposition of premium support comes during a time of healthcare improvements through the Affordable Care Act and Medicare reform, which aim to combat the rising costs and substantial budget deficits resulting from an aging population and increased healthcare utilization.

Monday morning at the 2012 America’s Health Insurance Plans’ Medicare and Medicaid Conferences began with the workshop, “Medicare Reform in the Age of Deficit Reduction: The Premium Support Debate,” featuring 3 key speakers from various policy institutes. Here are the highlights.

The general session began with Robert D. Reischauer, PhD, an economist and former director of the Congressional Budget Office, who provided background information regarding premium support (PS), which has been a hotly controversial proposed alternative to the current Medicare model. In short, PS provides beneficiaries with a set amount of money to shop among private plans for their own health plan coverage.

Dr Reischauer offered a number of reasons why PS may be an attractive approach to Medicare reform, citing political acceptance as an effective means of limiting costs, streamlining delivery systems, and encouraging integrated care delivery to improve the quality of care, provide increased accountability and transparency, and increase the overall ease of health system navigation by housing Medicare parts A, B, D, and Medigap under 1 roof.

Some of the critical components of PS and further details that may help differentiate the PS model as a “destructive monster or a constructive solution” include: adequate risk and geographic adjustments of payments to plans and methods of adjusting these payments annually; circumstances under which fee-for-service (FFS) Medicare remains an option for beneficiaries; the extent to which the markets for PS plans are structured and regulated to ensure fair competition; and adequate protection for the low-income, disabled, and cognitively impaired beneficiaries. Afterward, Dr Reischauer turned the podium over to Joseph Antos, PhD, from the American Enterprise Institute, who began by comparing the $4.8 trillion US debt of 1995 with today’s $16 trillion, adding that Medicare is one of the fastest growing components of the federal government, and stating that the policies and administration are still “trapped in 1965.”

The major features of PS, Dr Antos continued, are: defined contributions, risk adjustment and rated income subsidies, the traditional Medicare model, fair competition in a diverse health plan market, a cap on spending, and reforms such as the need to modernize the traditional FFS system with improvements to cautionary arrangements and FFS benefits.

Some of the possible issues he raised were: how tight the spending cap should be and if current spending on Medicare would be more effectively utilized to reduce costs in other functional areas of the federal government, and if the PS model could possibly shift costs to the disadvantage of the elderly and senior citizens.

Henry J. Aaron, PhD, a senior fellow at the Brookings Institution, took the stage afterward, and continued the discussion by contending that the current Medicare model has already incorporated many of the elements of a PS system. For example, 25% of Medicare beneficiaries are not receiving benefits under FFS plans; instead, there are more than 20 competing private plans that serve as alternatives to FFS plans.

Dr Aaron’s greatest concern with a PS model is that reductions will not materialize, and he described it as a “riverboat gamble” during tough economic times that “involves some very vulnerable people.” Regarding the Affordable Care Act (ACA), he stated that the reform policy approaches the health system as a whole, by extending insurance coverage and searching for means of improving the quality of care, utilizing Medicare as the instrument for achieving those objectives.

Dr Aaron concluded that the nation should remain committed to the implementation and enforcement of the ACA; it is a mixed system that includes large elements of competition and deserves continued support. The guiding principle should not be to cap spending on a vulnerable population, but rather to assure an optimal standard of care with levied taxes to fulfill that commitment.

Although the speakers could not unanimously agree on the role of PS implementation in the current healthcare landscape, they were able to agree that the model is currently not ready for implementation. There are administrative and practice problems to resolve, there is much to learn about PS system designs, and there remains the question of facilitating the exchange between Medicare and PS models. However, it will be possible to return to PS in a few years within a highly regulated marketplace.

To learn more about this session, please visit the AHIP 2012 Medicare and Medicaid Conference website.

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