On June 8, the Kaiser Family Foundation released a brief examining the effect of converting Medicare into a premium support program, as outlined in the U.S. House-approved $3.5 trillion FY2012 budget.  The authors chart the history of the premium support policy concept, examine policy decisions and issues that would affect its impact, and consider its potential effect on out-of-pocket (OOP) spending.  In addition, the brief explains how the government would set and adjust premium contributions, whether and how government contributions would be adjusted based on beneficiary demographics, and the required services plans must offer for participation in such a program.

From the report:

Current Medicare can be understood as a “defined benefit” program. The federal government has an open-ended obligation to pay for the program’s statutorily promised benefits. With an increasing focus on persistently high federal deficits and accumulating national debt, proposals are being debated in Congress to reduce the federal government’s expenditures on the program. One option is a defined contribution model such as premium support whereby the government’s fiscal commitment to the program would become more limited and predictable.

The most prominent of the proposals described as premium support1 that are presently being discussed are the plan for Medicare restructuring sponsored by House Budget Committee Chair, Paul Ryan (R-WI), which was approved by the House of Representatives in April 2011 as part of the House Fiscal Year 2012 budget resolution,2 and the Medicare recommendations made by recent deficit reduction commissions, including the commission led by Pete Domenici and Alice Rivlin.3 Elements of Medicare premium support also can be seen in the existing Medicare Advantage (MA or Part C) and Prescription Drug (Part D) programs. Similar “managed competition” concepts upon which premium support was developed are reflected in the coverage expansions and insurance reforms included in the Patient Protection and Affordable Care Act (ACA) enacted in 2010.

Full Report: The Nuts and Bolts of Medicare Premium Support Proposals (PDF | 670 KB)

Kaiser Family Foundation. (2011). The nuts and bolts of Medicare premium support proposals.