NCPA - National Center for Policy Analysis

Success of Consumer-Driven Principles in Medicare Programs

August 18, 2011

Medicare is in crisis.  Already generating tens of billions of dollars annually in deficits, its financial challenges threaten taxpayers and enrollees alike.  Moving to a premium-support model would reverse the program's deterioration by using the dynamics of the free market to contain costs and improve consumer satisfaction, says Kathryn Nix, a policy analyst at the Heritage Foundation.

Heritage's Saving the American Dream proposal builds on the most successful of the principles already guiding portions of seniors' care today.  Individuals could still choose premium-based Medicare fee-for-service.  They would have a new menu of options, however, of private plans including fee-for-service, managed care, Medicare Advantage, association plans, employer-based plans and more.

  • Contributions would be income-adjusted, restoring Medicare to its original function as a genuine social insurance program.
  • Very wealthy seniors would continue to benefit from access to an insurance marketplace where they could not be denied coverage, but they would no longer receive taxpayer subsidies to purchase coverage.
  • Low-income seniors would continue to receive additional aid under Medicaid if they remain in traditional Medicare; if enrolled in a private plan, states could "top off" the federal contribution with further financial assistance.
  • Costs would be controlled in part through competition.
  • The federal contribution for premium support would be based on bids submitted by participating plans to cover traditional Medicare benefits, as well as a new catastrophic care benefit.

As Medicare enrollment grows, increasing demand for medical services cannot be fulfilled through the program's current, outdated fee-for-service structure that rewards volume -- not quality care -- and exacerbates rising costs, says Nix.

Source:  Kathryn Nix, "A Recipe for Reform: Success of Consumer-Driven Principles in Medicare Programs," Heritage Foundation, August 10, 2011.

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