NCPA - National Center for Policy Analysis

How to Pay for Medicare

June 1, 2016

Rising numbers of retirees and excess cost growth have made it imperative that we chance how the Medicare is financed - or the cost burden will crush taxpayers, according to a new study by NCPA Senior Fellows Andrew J. Rettenmaier and Thomas R. Saving.

"One of the goals of the Affordable Care Act and of the majority of Medicare reform proposals has been to reduce or eliminate excess cost growth as it applies to federal spending," write Rettenmaier and Saving. "Without significant changes in the current program, it is not realistic to think that federal Medicare spending per capita can be constrained to grow at the same rate as per capita GDP.

Saving and Rettenmaier suggest four options for reforming Medicare:

  • Raise Beneficiary Premiums to Cover Excess Cost Growth. Reducing federal per-capita Medicare spending growth in the alternative forecast to the baseline estimates from the 2015 Trustees Report could be accomplished by raising seniors' premiums. 
  • Raise Deductibles and Copays to Limit Spending to the Baseline Forecast. Retirees would then be responsible for the rising cost-sharing this option requires. Means-tested contributions to Health Savings Accounts (HSAs) by the federal government      could complement the reformed insurance.
  • Constrain the Federal Payment Rate by Procedure and Service. Rather than paying the CMS-determined      reimbursement to each provider, Medicare would give those amounts to the participants. Over time, a real market would emerge for health care due to seniors\' demand for lower prices.
  • Premium Support Payments that Rise at the Same Rate as Per-capita GDP.  This would offer a significant level of both individual choice and individual payment responsibility, while limiting the role of CMS in the Medicare market.  In its simplest form, this option provides average premium support payments that in aggregate follow the Trustees baseline forecast. 

"Over the next 75 years, from 2016 to 2089, Medicare is projected to grow from 3.53 percent to 6.02 percent of gross domestic product (GDP)," write Rettenmaier and Saving. Their proposed reforms would bring the per-capita federal cost growth of Medicare, the taxpayer burden, in line with the per-capita growth of GDP, and could incorporate premium payments, deductibles, co-payments, or contributions that vary by lifetime income.

 

Browse more articles on Tax and Spending Issues