NCPA - National Center for Policy Analysis

Medicare Premium Support Is Not Radical

February 17, 2012

With rising health care costs and the retirement of baby boomers, it is widely accepted that the costs of administering Medicare are set to skyrocket.  To address this, a number of policy options are available to lawmakers in Washington -- two that are radical and one that is evolutionary in its approach, says J.D. Foster, the Norman B. Ture Senior Fellow in the Economics of Fiscal Policy at the Heritage Foundation.

  • The first radical option is to do nothing and allow Medicare expenditures to slowly engulf an ever-growing portion of the federal budget.
  • The second radical possibility is to transform the health care sector into a European-style system where all are covered under tight government control -- the Affordable Care Act was an incremental step in this direction.
  • The third option, which is thoroughly more moderate that the previous two, is to build on the current system instead of scrapping it entirely.

Under the third option, seniors who qualify for Medicare support would be encouraged to select their own plan from the private market.  Upon selection, their premiums would be subsidized by Medicare, allowing an inverse relationship between the income of the senior and the proportion covered by the subsidy.  Such a plan would enable the natural efficiency of the private sector and expand seniors' choice.

Detractors argue that this is in fact a revolution of the Medicare organization, as it largely privatizes the government program.  However, this argument fails to take into account the fact that Medicare is already largely driven by private forces.

  • In 2011, nearly 12 million seniors (about 25 percent of all Medicare beneficiaries) were on Medicare Advantage, which allows them to choose their own health care plan.
  • As participants in Medicare Part D, 34.5 million seniors selected their prescription drug coverage from among many private plans.
  • In 2008, about one in six Medicare beneficiaries (about 7 million seniors) purchased extra Medigap insurance in the private market.

It is clear that Medicare is already a largely privatized program, and that implementation of premium support would simply take better advantage of this characteristic.

Source: J.D. Foster, "Premium Support Is Incremental, Not Radical Medicare Reform," Heritage Foundation, February 7, 2012.

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