The need for significant Medicare reform is increasingly evident, even to policymakers long accustomed to avoiding this politically explosive topic. A host of commissions and expert groups, ranging from the President’s National Commission on Fiscal Responsibility and Reform to the Heritage Foundation, have argued that the United States is on an unsustainable fiscal path. Medicare is at the center of our fiscal crunch, with outlays that have grown about twice as fast as the economy over the past decade, according to the Congressional Budget Office (CBO).
Even if the substantial reductions in payments to health care providers included in the Affordable Care Act (ACA) are fully implemented and Congress allows the 27.4% reduction in physician payments required under current law to go through, Medicare spending will continue to grow at unsustainable rates. It is more likely that Congress will not enforce such large reductions in provider payments, making Medicare’s drain on the budget that much greater. With the retirement of 76 million Baby Boomers over the next two decades, the program will consume an ever increasing share of the federal budget unless policies are adopted to bend Medicare’s cost curve.
On December 15, 2011, Senator Ron Wyden (D-OR) and Representative Paul Ryan (R-WI) released a Medicare reform proposal based on the concept of premium support. Under their proposal,
Medicare would be converted from a defined-benefit to a defined contribution program. Instead of guaranteeing to pay for services as they are rendered, as fee-for service Medicare does, the program would give beneficiaries a subsidy (“premium support”) to purchase coverage from one of multiple competing health plans. The motivation behind the approach is to give plans a clear incentive to provide necessary services in a cost-effective manner, which can result in lower premiums or other beneficiary costs, attracting enrollees and increasing the plan’s share of the market.