Is Premium Support The Right Medicine For Medicare?

PROLOGUE: In early 1999 the National Bipartisan Commission on the Future of Medicare fell one vote short of approving a plan to restructure Medicare that would have changed fundamentally the way the program pays for services. Similar changes were incorporated in a subsequent reform proposal from the Clinton administration. The concept of “premium support” supplied much of the common ground for the competing plans, and consensus appeared to be just around the corner. Before agreement could be reached, however, new data began turning up that showed a marked decrease in Medicare spending in the wake of the 1997 Balanced Budget Act, and health plans began pulling out of Medicare managed care in growing numbers. While interest in restructuring the program remains high, the assumptions that undergirded the 1999 debate over premium support now stand in need of a thorough reexamination, as this analysis by Jonathan Oberlander explains. The savings forecast for a restructured Medicare+ Choice program stand out in retrospect as a particularly weak link in the arguments made for the premium-support models of 1999. But as Oberlander points out, questions raised by unexpected developments in the Medicare environment in the past eighteen months don't end there. Rather than taking premium support as a starting point for further debate, he suggests, policymakers need to test the concept against what has been learned since dialogue stalled last year. Oberlander is an assistant professor of social medicine at the University of North Carolina at Chapel Hill. He was formerly a Robert Wood Johnson fellow at the University of California, Berkeley, and currently is working on a book project sponsored by the Century Foundation on Medicare reform options. ABSTRACT: This paper assesses the desirability of transforming Medicare into a premium-support system. I focus on three areas crucial to the future of Medicare: cost savings, beneficiary choice, and the stability of traditional Medicare. Based on my analysis of the Bipartisan Commission on the Future of Medicare plan, I find substantial problems with adopting premium support for Medicare. In particular, projections of premium-support savings are based on questionable assumptions that the slowdown in health spending during 1993–1997 can be sustained and extrapolated to future Medicare performance. Consequently, premium support may inadvertently destabilize public Medicare and erode beneficiary choice without achieving substantial savings.