Heritage Foundation Leadership for America

In 2011, the first big wave of the huge baby-boom generation will start to retire. In these final days of the House-Senate conference on Medicare legislation, the conferees must decide whether or not they are going to set in motion a real reform of the Medicare program for that next generation of retirees.

Patient Satisfaction High

Among many, if not most, health policy analysts, real reform means one thing: premium support. The basic principle of premium support is that the government would make a direct premium contribution to the health plan of the beneficiaries’ choice, including, if they wished, the private health plans they had during their working lives. The government contribution would be generous and would be based on a formula that reflects real market conditions.

In its ease of administration and flexibility, the program would operate on the same basis as the 43-year-old Federal Employees Health Benefits Program (FEHBP) with a well-tested premium support system. Multiple plans compete in every area of the country, including rural areas, costs are controlled, and patient satisfaction is very high.

The Senate bill includes no such reform. The House bill (H.R. 1) does create a premium support system, but it would not begin until 2010, one year before the first major wave of the baby boomers retire, and the House provisions would be phased in over a period of five years.

Lemieux’s Blueprint

Congress has an opportunity to build on the House provisions in a way that strengthens them and secures a positive change for the next generation of seniors and taxpayers.

Jeff Lemieux, a senior economist with the Progressive Policy Institute, research arm of the Democratic Leadership Council, and the founder of Centrists.org, a new nonpartisan research organization, has outlined in detail how Congress could create a premium support system.

A former staff member with the National Bipartisan Commission on the Future of Medicare, which was created in 1997, Lemieux explains how:

• A Medicare premium support is superior to benefit cuts or tax increases in controlling future Medicare costs;
• The premium support model differs from the conventional defined contribution approach;
• The Congress could set government contributions to health plans and adjust for risk and geographical differences; and
• Drug coverage would be integrated into a premium support system.

The full text of the study, Explaining Premium Support: How Medicare Reform Could Work, by Jeff Lemieux (November 4, 2003)