Premium support in Medicare

One of the strategies proposed to control escalating Medicare costs is converting Medicare to a premium support system, whereby the federal government would give beneficiaries an amount to purchase regular Medicare fee-for-service coverage or to enroll in a private plan. Formulating such a system is the subject of a recent 66-page report from the Congressional Budget Office (CBO).

According to the report, about 17 percent of Medicare beneficiaries are enrolled in private Medicare Advantage plans that provide Medicare benefits. For each private enrollee, the government sets a maximum payment called the benchmark, which is set at the county level. In a premium support system, CBO proposes that the government's contribution could be established by competitive bidding by private plans or be a set amount. In a bid approach, benchmarks could be determined by the bids rather than by statutory rules as currently done.

In its analysis, CBO notes a number of uncertainties in the effects of such a system, from costs and premiums to whether a benefits package should be standardized. Under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, P.L. 108-173 (pdf, 416pp/1MB), the government is to conduct a six-year, six-city demonstration of premium support beginning in 2010.

Designing a Premium Support System for Medicare (pdf, 66pp/608kB), December 2006