Backgrounder- Heritage Backgrounders give researchers the in-depth information they need on a wide variety of key issues.
February 7, 2012
By J.D. Foster, Ph.D.
Abstract: Medicare reform is inevitable because its demands on the federal
budget are unsustainable. The question is whether Congress will extend the
premium support model to the rest of Medicare or pursue a radical approach that
either ignores the existing problems until the program collapses or forces all
Americans, seniors and non-seniors alike, into a national, government-run,
European-style health care system. The premium support approach would
incrementally build on the program as it operates today to provide seniors with
more choice, leading to a more rational health care market for all Americans.
Medicare reform is coming soon, perhaps very soon. The federal program providing
health insurance to America’s seniors works reasonably well today, but it could
perform much better by offering more choices at lower cost to seniors, ensuring
that at-risk seniors have the financial protection they need, reducing costs to
taxpayers, and working as a tool for restraining the growth in health care costs
nationally. However, Medicare is wildly unaffordable as currently configured,
and thus substantial reform is inevitable.
The budgetary resources claimed by Medicare are enormous. In 2010, Medicare
spending exceeded $500 billion, of which $204.7 billion was funded by individual
and corporate income taxes. This burden is projected to grow rapidly in the
coming years under the twin accelerants of rising health care costs and
baby-boom generation retirements. Medicare reform is coming soon, and it can
take one of two radical paths or one sensible, incremental path.
One radical path is to pretend the program is fine as it is. Many traditional
Medicare supporters adopt this unsustainable do-nothing, non-reform approach.
Another radical path is effectively to force all Americans, seniors and
non-seniors alike, into a national, government-run, European-style health care
system. President Barack Obama’s health care reform (Obamacare) was the latest
step on this path.
The main alternative to these radical approaches is to rationalize Medicare’s
existing structures through familiar incremental reforms. The result, known as
“premium support,” is reflected in The Heritage Foundation’s Saving the
American Dream plan as well as in the bipartisan legislation introduced by
House Budget Committee Chairman Paul Ryan (R–WI) and Senator Ron Wyden (D–OR). Premium support is readily
recognizable to seniors today. It could be implemented in stages as described
elsewhere and would remedy the major failings of Medicare, making it effective
and affordable for seniors and taxpayers alike.
Finding a solution to a problem starts with agreeing that there is a problem.
Few dispute Medicare poses big problems today. Medicare’s troubles are
ultimately distinguishable as a financial problem, a structural problem, and an
economic problem—what it costs, what it offers, and the total economic resources
that Medicare will absorb in the years ahead.
The financial problem is well established. According to the latest Medicare
Trustees’ report, Medicare imposed a drain on the Treasury’s general fund in
2010 of $204.7 billion— about 16 percent of the total 2010 budget deficit. In other words, taxpayers as a group
provided more than $200 billion to subsidize seniors’ health insurance. This
drain will only grow larger as the price of health care rises and the baby-boom
generation retires, presenting the nation with Medicare’s unfunded promises in
the tens of trillions of dollars.
The structural problem is nearly as plain as the financial problem. Essentially,
Medicare is a massive health insurance company owned and operated by the
government for seniors, who are collectively the most medically complex members
of society. To make matters worse, Medicare’s basic structure was laid down
decades ago, and Congress has repeatedly meddled in its operations to address
political or budgetary issues. Medicare’s patchwork coverage has forced most
seniors to buy additional coverage to fill in the gaps.
Yet each of these aspects is but an addendum to Medicare’s larger structural
shortcoming, which is reminiscent of Henry Ford’s famous quip, “Any customer can
have a car painted any color that he wants as long as it is black.” For most seniors, traditional Medicare
provides one choice of coverage. Medicare does not provide real insurance as
most Americans likely conceive of insurance. It is an outdated government mockup
of what insurance should be, a pale imitation of the real insurance that seniors
need and expect.
Medicare’s economic dimension is similarly straightforward and may remain even
after the financial and structural problems are addressed. As with health care
generally, seniors’ health care spending through Medicare and otherwise absorbs
a very large and rapidly growing portion of the nation’s productive resources.
Whether this is a problem or only a consequence depends on whether this reflects
the nation’s preferred allocation of its resources and its money. Depending on
the approach, correcting Medicare’s financing may not alter the economic picture
materially or restructure Medicare. However, when the federal government can use
a single program to control and direct a significant chunk of the nation’s
annual income and output and that chunk is expected to grow steadily, these
developments ought not pass without notice.
At least since the Clinton Administration the nation has been wrangling with
fundamental reforms to Medicare’s financing to make the program affordable and
to modernize its structure to ensure that seniors can afford and receive
appropriate quality care, while reducing the portion of the nation’s resources
devoted to Medicare.
Today, three basic approaches to Medicare reform are on the table. Two of them
are truly radical and would take Medicare in wholly new and truly uncertain
directions, while the third option is fundamentally incremental and familiar,
building on the program as it operates today. The first radical option is to do
nothing and allow the entire operation to collapse financially. Surprisingly,
this approach still has a few supporters among Medicare traditionalists,
including the seniors lobby AARP, which insists on the absurdity that Medicare’s
problems can all be solved by cutting government waste. The second radical option is moving toward a
national single-payer system, or total government-run health care. The Patient
Protection and Affordable Care Act (PPACA), President Obama’s massive health
care legislation also known as Obamacare, was a major next step in this
Contrary to the strong assertions of some, including many who prefer one of the
two radical approaches, the familiar and incremental approach is to adopt a
premium support model for Medicare. Far from a new idea, the premium support
model can be traced back to the Clinton-era National Bipartisan Commission on
the Future of Medicare, chaired by Senator John Breaux (D–LA) and Representative
Bill Thomas (R–CA). This approach was
also outlined in a joint effort by Chairman Ryan and former Clinton
Administration Office of Management and Budget Director Alice Rivlin, and it was included in the more recent
“Path to Prosperity” budget proposal offered by Chairman Ryan that passed by the
House of Representatives in 2010. It
has been described most completely in The Heritage Foundation’s Saving the
American Dream plan and the Wyden–Ryan plan noted above. Far from a radical approach, every aspect of the
Medicare premium support model builds on elements that are common, indeed
fundamental to the existing Medicare system. Premium support simply takes these
elements to their logical conclusion while tying them together in a cohesive,
Despite the mounting evidence of Medicare’s financial troubles, a number of
policymakers and major institutional voices maintain that Medicare is
fundamentally sound despite its current drain on general revenues. Indeed, these
defenders of the status quo are so enamored with Medicare as it operates today
that they often argue its current design should be extended to the rest of the
U.S. population—the “Medicare-for-all” concept.
In truth, leaving Medicare as is would be the most radical of all paths because
it is the path of sure fiscal catastrophe. Medicare spending, which has risen
from 0.7 percent of gross domestic product (GDP) in 1971 to 3.6 percent in 2010,
is already putting a severe strain on the federal budget. This means the nation
is devoting more than 3 percent of GDP to a single federal program, and
Medicare’s growth is on track to accelerate over the next two decades as health
care costs continue to rise and baby boomers age into the program. Medicare
combined with Social Security and Medicaid spending threatens to drive up the
federal debt above 100 percent of GDP.
Worldwide experience shows that rapid debt growth at this extreme is very
dangerous because countries with such excessive debt burdens tend to experience
slow economic growth and high debt service costs, both of which make digging out
from under this burden much more difficult. In short, doing nothing—leaving
Medicare as it is but for a tweak or two—is radical in that it is destined to
fail. Such a policy of inertia will lead inexorably to a burst of ever-more
radical, painful changes compelled by collapsing Medicare and federal government
finances and imposed on a population of seniors unprepared for the shock of
restricted health care access and much higher costs. The sooner reform is
enacted, the longer seniors and seniors-to-be will have to prepare, the sooner
they can avail themselves of the expanded health insurance choices, and the less
damage Medicare’s resource demands will do to the nation’s finances and economy.
Closely related to those advocating doing nothing are those who advocate doing
as little as possible. In their view, Medicare’s structure is fundamentally
sound. It just needs better management. Better management is always desirable,
but Medicare’s financial problems are not due to bad management, but to bad
design. Medicare’s financial problems are structural and fundamental.
The recently enacted Obamacare health law is filled with the next generation of
management tweaks, a multitude of ideas to give the Department of Health and
Human Services (HHS) the authority to manage Medicare differently. The top idea
is Accountable Care Organizations (ACOs), an updated version of the well-known
health maintenance organizations (HMOs). The idea is to give doctors and
hospitals financial incentives to develop new organizations for delivering care
that would be more cost-efficient, and then the taxpayers share in the savings
This sounds great in an academic setting, but as usual, in practice a top-down
approach to building these new organizations will not work. Moreover, HHS is planning to place Medicare
beneficiaries into ACOs without necessarily obtaining the beneficiaries’ consent
to do so. The result is a fatally flawed concept with little prospect of making
a real difference. Even the Congressional Budget Office (CBO) and the actuaries
who evaluate these programs for the Administration do not expect these efforts
to amount to much.
The second radical management proposal is to cap total Medicare spending and
then allow an unaccountable board to enforce the cap by cutting payments to
service providers. President Obama has advocated this approach, and unbeknownst
to many Americans, it was included in Obamacare in the form of the Independent
Payment Advisory Board.
The IPAB was born out of the belief that Congress lacks the expertise and
determination to oversee Medicare properly. In a sense, this is correct.
Medicare is effectively a massive, government-owned and government-run health
insurance company that must establish reimbursement rates for hundreds of
thousands of services, goods, and procedures.
No Congress can effectively perform the role of chief executive officer or board
of directors of such a complex entity. Thus, Obamacare outsources the authority
to change what Medicare pays for medical services to the IPAB, a 15-member body
appointed by the President with bipartisan congressional input. After 2014, the
IPAB is charged with keeping total Medicare spending below a cap defined in law
at slightly faster than the economy’s growth rate.
To hit the target, the IPAB can only make recommendations to reduce payments to
service providers. The IPAB is not allowed to change how beneficiaries interact
with Medicare. This means the IPAB will surely resort to the same arbitrary
price-cutting that has been used in Medicare for the past half century to the
detriment of patients, physicians, and the health care market. Instead of
identifying waste, unnecessary expenses, and systemic inefficiencies that arise
in any organization, the IPAB will likely follow Congress’s practice in recent
years of cutting reimbursement rates for everyone, an approach that has proven
ineffective in restraining Medicare costs and harmful to seniors’ access to
needed health care services.
Across-the-board cuts, especially if applied repeatedly, appear to affect
providers primarily, but these cuts inevitably lead to serious consequences for
beneficiaries. In some cases these cuts bring prices in line with costs, but in
other cases the indiscriminate cuts mean underpaying providers for services.
Under normal conditions market forces would drive up the prices of some services
to signal the need to employ more cost-effective practices or to reflect
increases in underlying costs. Artificially holding down prices jumbles the
market signal that would otherwise encourage more doctors to apply more
effective practices and search for less-costly alternatives.
According to Richard Foster, chief actuary of the Centers for Medicare and
Medicaid Services, the rate cuts already enacted in PPACA will drive Medicare’s
reimbursement rates below Medicaid rates by the end of the decade, and
Medicaid’s rates are so low that many of the program’s participants have great
difficulty securing ready access to care. “Unless providers could reduce their
cost per service accordingly, through productivity improvements or other steps,
they would eventually become unwilling or unable to treat Medicare
beneficiaries.” The IPAB is then
charged with cutting rates further, which will compel even more medical
professionals to stop seeing Medicare patients. Medicare’s health insurance for
seniors is of little value if seniors have limited or no access to the care they
Advocates for the IPAB approach try to portray the idea as a noncontroversial,
good-government management support system for Medicare. The truth is that it is
a radical and counterproductive plan to hand over immense power to an unelected
board to reduce payment rates by fiat and implicitly to ration services for
seniors. The net effect will be to diminish seniors’ access to care. America’s
seniors were promised a viable, effective Medicare program. While substantial
changes are necessary, these changes should not imperil seniors’ access to care.
A brief review of Medicare is necessary to show how reforms based on premium
support build on Medicare’s existing foundations. Medicare is the federal
government’s health insurance program for all Americans age 65 and older and for
the disabled. In 2010, the program covered 47 million enrollees, almost half of
whom had annual incomes below 200 percent of the federal poverty level ($21,600
for individuals and $29,140 for couples).
Medicare has four parts:
Even a quick overview shows some important features of the Medicare geography:
Another vital feature is what Medicare does not cover, an aspect that
distinguishes Medicare from what most Americans would consider real insurance.
Most especially, Medicare’s benefits for individuals are capped, thus exposing
seniors to financial destitution, even though Medicare was intended to guarantee
seniors adequate access to affordable health care and to prevent health care
costs from driving seniors into poverty. Seniors with very high costs or chronic
illnesses requiring prolonged and expensive treatments can exhaust their
coverage by hitting the cap and thus running out of benefits. Consequently,
around 10 million seniors choose to supplement Medicare coverage by buying
Medigap at market rates from private insurance companies.
Under the premium support model as described in Saving the American Dream,
the Wyden–Ryan plan, and elsewhere, seniors would enroll in the health plans
of their choice. Medicare would then cover a portion of the premiums (the
premium support, also sometimes called a defined contribution) associated with a
senior’s chosen plan. This approach is similar to the federal contribution that
millions of federal employees and retirees receive through the Federal Employee
Health Benefits Program (FEHBP) and is typical of most health plans purchased
today by non-seniors in the private sector. Most importantly, it is very similar
to the structure for Medicare Advantage and Medicare Part B and Part D.
Essentially, the current structure for the rest of Medicare would be extended to
Part A, the sole holdout and the oldest element of Medicare. Further, as with
the Part B and Part D premiums, the amount of premium support would decline once
the senior’s income exceeds a certain threshold.
In some premium support plans, such as the Heritage plan, seniors would still
have the option of buying traditional Medicare fee-for-service, or they could
purchase their insurance from private insurers. However, in designing their
plans, private insurers would remain subject to Medicare’s basic insurance
rules, much as the FEHBP provides rules and oversight for federal employees.
Additional mechanisms to ensure proper oversight would also be needed. For
example, the new system could preserve and strengthen Medicare’s Center for Drug
and Health Care Plan Choice, which is tasked with identifying abuse and
overseeing marketing rules for Medicare Advantage and Medicare drug plans under
Finally, the premium support model does not inherently presuppose a specific
level of overall Medicare spending. The choice of moving toward a premium
support model is about improving the options for seniors to buy the insurance
that best fits their needs and circumstances, in part by fostering a stronger
private health insurance market. As a matter of budget policy, Medicare spending
may increase, remain on its current trajectory, or decline under a premium
support model depending on the level of support provided to low-income,
middle-income, and upper-income seniors. There are good reasons to believe
Medicare spending would decline under a premium support model even without
changing the subsidy structure while providing seniors as good or better health
care coverage and health care services, but the level of resources committed to
Medicare through the budget is ultimately a separate policy issue. The distinction is between how much
to spend and what to buy.
Laying out the current Medicare model and a full premium support model in this
fashion shows how the premium support model is an incremental, evolutionary
approach to ensuring Medicare remains an affordable program that ensures
adequate access to health care services for America’s seniors.
Many Americans and many
policymakers imagine Medicare as a one-stop shop for all seniors’ health
insurance needs. Thus, they have difficulty imagining seniors sorting through
the complexities of buying their own health insurance. In fact, today, tens of
millions of seniors independently buy some form of health insurance in the
Critics often suggest that
the premium support model would “privatize” Medicare. In reality, the vast bulk
of the Medicare-financed health care delivery system is already private. The
shortcoming with Medicare’s design lies not in the elements that are in the
hands of private citizens and businesses, but in many of the elements that
remain firmly under government control.
In the Medicare system itself, about 25 percent (12 million) Medicare
participants already buy the main components of their insurance coverage from
private companies through the Medicare Advantage program. In many respects, the
premium support model is simply an elaboration of and completion of what
Medicare Advantage started.
Nearly two-thirds (22.5 million) of seniors not on Medicare Advantage purchase
private health insurance against drug expenses. Under Medicare Part D, seniors
purchase drug coverage from private insurers vetted by Medicare. Seniors pay a
premium for this coverage that covers less than 10 percent of the average cost,
and taxpayers pay the balance. The portion paid by taxpayers is premium support.
Thus, Part D is a classic premium support program.
As noted, about 7 million seniors also buy supplemental health care coverage.
They do not buy this coverage from Medicare or some other government agency.
They buy it from private insurance companies regulated by the states and the
Medicare Part A (Hospital Insurance) and Part B (Medical Insurance, mostly
doctors’ services), which are administered by the traditional Medicare program,
are not administered on a daily basis by government bureaucrats in Washington,
D.C., but by private contractors, usually large private insurance carriers that
process Medicare claims.
Continuing on the progression from insurance to health care services, outside
the Indian Health Service, the Veterans Administration system, and military
medicine in general, the federal government employs very few doctors, nurses,
technicians, or hospital administrators. It owns no hospitals, although
municipal governments own some facilities. The most critical aspect of the
health care system—the actual delivery of care to the nation’s seniors—is
performed almost entirely by the private sector. Doctors, nurses, home health
care providers, nursing homes, clinics, hospice care facilities, and hospitals
are almost all private agents or institutions.
Seen in this light, the health care delivery and financing system for seniors is
already overwhelmingly in private hands, administered by private firms. It
cannot be privatized because it has always been privately run. Only the portions
of the insurance system that remain in government hands—although much of this
work is contracted out—and those portions under government control are precisely
those demonstrating Henry Ford’s dictum of offering seniors only one option.
Many seniors are fully capable of making their own choices about financial
matters, including health insurance. They have demonstrated that competence by
enrolling in Medicare Advantage, the Medicare drug benefit, and Medigap
supplemental coverage, not to mention making the other financial decisions on
life insurance, investments, estate planning, and reverse mortgages, among
others. Nevertheless, many seniors have a reasonable concern that as they grow
older, their willingness or ability to make financial decisions could diminish.
Many take comfort that traditional Medicare run by a presumably benevolent and
competent government will offer them reliable insurance against high health care
costs without having to wrangle with private health insurance companies.
Whether seniors should be more concerned about a government bureaucracy handling
their insurance issues or a private company subject to market pressures and
vigilant government oversight is a separate question. The fact remains that this
is a concern for many. Yet under a premium support model, government will still
play a major role in determining which companies are strong enough financially
and responsible enough in their customer service to participate in the program,
just as the federal government does today with Medicare Advantage and the Part D
drug benefit and as it does for federal workers participating in the FEHBP.
Because federal monies pay some of the premium costs for these plans, the
federal role remains entirely appropriate and central to the operation of a
premium support plan. However, the federal role shifts away from offering and
managing what is effectively a government-run insurance company offering
inadequate insurance coverage, to the more traditional and proper governmental
role of regulation and oversight.
Another misconception that may lead to discomfort with the premium support model
is the element that seniors would henceforth need to pay premiums for health
insurance. Many people not already on Medicare mistakenly believe that their
payroll taxes paid during their working lives pay for all of their Medicare
benefits. This is incorrect.
As discussed above, the payroll tax essentially prepays for Medicare Part A.
Seniors pay premiums for a portion of the premiums for Parts B, C, and D
coverage. Under the premium support model, the government contributes a defined
amount to the cost of the policy and the beneficiary picks up the rest,
precisely the arrangement currently in place for most of Medicare.
Further, under most premium support proposals such as the Heritage plan, the
level of premium support decreases as a seniors’ income rises above a threshold.
Likewise, most seniors who today purchase Medicare Parts B, C, or D pay premiums
that are adjusted according to their reported income.
When they pay Medicare premiums, many seniors today may believe they are paying
the full cost of the benefits that they receive or that these costs were somehow
offset by the payroll taxes they paid while working. Again, these beliefs are
mistaken. In point of fact, the payroll tax paid while working applies only to
Part A, and taxpayer subsidies cover most of the costs of providing coverage for
the rest of Medicare. These subsidies are paid out of the general fund of the
U.S. Treasury into which are deposited individual and corporate federal income
taxes and a variety of lesser revenue sources.
A strong argument can be made for subsidizing the health insurance of low-income
seniors as part of the nation’s basic safety net. An equally strong argument can
be made against subsidizing the health insurance or any other expense incurred
by wealthy seniors. Somewhere between these two end points—supporting low-income
seniors so that they are not impoverished by health care costs and requiring
wealthy seniors to cover their own expenses—lies an income threshold at which
the subsidy should begin to decline and another, higher-income level at which
the subsidy should disappear.
In 2011, the Part B and Part D subsidies began to phase out at $85,000 for
individuals and $170,000 for married seniors. These are moderately high levels
of retirement income. Indeed, less than 5 percent of seniors pay more than the
standard premium amount. To put these
figures into context, a senior making $170,000 in annual income from savings
earning 5 percent has an estate worth at least $3.4 million, not including the
value of his or her home.
While a phasedown of the subsidy is not an inherent element of the premium
support model, most premium support plans such as the Heritage Saving the
American Dream plan follow Medicare’s current pattern and include a
phasedown so that subsidies are directed where they are most needed. These
subsidies are paid out of the taxes levied on everyone. There is no
justification for subsidizing wealthy retired seniors’ health insurance with
taxes levied on middle-class working families.
Fundamental Medicare reform is both inevitable and imminent. The natural
evolution for Medicare is to build on its existing strengths. Efforts to reform
a program of such complexity and such importance to a large and often vulnerable
population should be incremental and familiar. The premium support model for
Medicare fits this prescription perfectly. It builds directly on the existing
elements of three of the four parts of Medicare. It would offer seniors the
ability to choose the plans that fit their needs and circumstances while
ensuring that the offered policies are well-vetted and carefully monitored by
the federal government already charged with that task. Ultimately, it would help
lead to a more rational health care market for all Americans.
Those who would call premium support “radical” or who suggest that it would
“privatize” or otherwise destroy Medicare in some sense are either unfamiliar
with how Medicare works today, or perhaps in their ardor to advance a truly
radical alternative they have not taken the time to study how the premium
support model would actually work. Every senior on Medicare today would easily
recognize and relate to a fully implemented Medicare reform built on the premium
support model, which would provide seniors with more choice and a system that
would be vastly easier to navigate than the current system.
—J. D. Foster, Ph.D., is Norman B. Ture Senior Fellow in the Economics of
Fiscal Policy in the Thomas A. Roe Institute for Economic Policy Studies at The
Show references in this report
For a wealth of information on
Obamacare, The Heritage Foundation, “Our Research & Offerings on Obamacare,” at
(January 25, 2012).
See Stuart M. Butler, Alison Acosta
Fraser, and William W. Beach, eds., Saving the American Dream: The Heritage
Plan to Fix the Debt, Cut Spending, and Restore Prosperity, The Heritage
Foundation, 2011, at
http://savingthedream.org/about-the-plan/plan-details/, and Ron Wyden and
Paul Ryan, “Guaranteed Choices to Strengthen Medicare and Health Security for
All: Bipartisan Options for the Future,” December 2011, at
http://budget.house.gov/UploadedFiles/WydenRyan.pdf (January 25, 2012).
See Robert E. Moffit, “The First Stage
of Medicare Reform: Fixing the Current Program,” Heritage Foundation
Backgrounder No. 2611, October 17, 2011, at
and “The Second Stage of Medicare Reform: Moving to Premium Support,” Heritage
Foundation Backgrounder No. 2626, November 28, 2011, at
Centers for Medicare and Medicaid
Services, 2011 Annual Report of the Boards of Trustees of the Federal
Hospital Insurance and Federal Supplemental Medical Insurance Trust Funds,
May 13, 2011, at
https://www.cms.gov/ReportsTrustFunds/downloads/tr2011.pdf (January 26,
See Henry Ford, My Life and Work
(New York: Doubleday Page and Company, 1922).
See Emily Goff and Alyene Senger, “The
Video AARP Hasn’t Made: Medicare’s Need for Structural Reform,” The Heritage
Foundation, The Foundry, October 20, 2011, at
Patient Protection and Affordable Care
Act, Public Law 111–148.
See National Bipartisan Commission on
the Future of Medicare, “Building a Better Medicare for Today and Tomorrow,”
March 16, 1999, at
http://thomas.loc.gov/medicare/bbmtt31599.html (January 26, 2012).
See Paul Ryan and Alice Rivlin, “A
Long-Term Plan for Medicare and Medicaid,” November 17, 2010, at
http://paulryan.house.gov/UploadedFiles/rivlinryan.pdf (January 26, 2012).
Committee on the Budget, U.S. House
of Representatives, “Path to Prosperity: Restoring America’s Promise,” April 5,
(January 26, 2012).
Butler et al., Saving the
For more information on ACOs, see
John S. Hoff, “Accountable Care Organizations: Obama’s Magic Bullet Misfires,”
Heritage Foundation Backgrounder No. 2592, August 10, 2011, at
and Rita Numeroff, “Why Accountable Care Organizations Won’t Deliver Better
Health Care—and Market Innovation Will,” Heritage Foundation Backgrounder
No. 2546, April 18, 2011, at
See CBO Director Douglas Elmendorf’s
comments in Merrill Goozner, “Rising Health Care Curve Won’t Bend, Even for
Obama,” Kaiser Health News, July 13, 2011, at
(January 26, 2012).
For a favorable general overview of
the IPAB, its genesis, and related further policy questions, see Jack Ebeler,
Tricia Neuman, and Juliette Cubanski, “The Independent Payment Advisory Board: A
New Approach to Controlling Medicare Spending,” Henry J. Kaiser Family
Foundation, April 2011, at
http://www.kff.org/medicare/upload/8150.pdf (January 26, 2012).
The cap’s growth rate is set at the
GDP growth rate plus 1 percentage point, although the President has recently
proposed to lower the annual cap to GDP plus 0.5 percentage points.
See Richard S. Foster, “The Financial
Outlook for Medicare,” testimony before the Committee on the Budget, U.S. House
of Representatives, July 13, 2011, at
http://budget.house.gov/UploadedFiles/Foster_Testimony.pdf (January 26,
For more information on the IPAB’s
flaws, see James C. Capretta, “The Independent Payment Advisory Board and Price
Controls,” Kaiser Health News, May 6, 2010, at
(January 26, 2012).
The income thresholds are half these
amounts for non-married seniors.
See America’s Health Insurance Plans,
Center for Policy and Research, “Trends in Medigap Coverage and Enrollment,
2010–2011” July 2011, at
http://www.ahipresearch.org/pdfs/Medigap2011.pdf (January 26, 2012).
Many premium support proposals,
including the Heritage plan, include an explicit budget cap as a backstop to
ensure that Medicare spending is constrained.
See Centers for Medicare and Medicaid
Services, 2011 Annual Report of the Boards of Trustees, p. 195, Table
See ibid., p. 181, Table
See Henry J. Kaiser Family
Foundation, “Medigap Reforms: Potential Effects of Benefit Restrictions on
Medicare Spending and Beneficiary Costs,” July 2011, at
http://www.kff.org/medicare/upload/8208.pdf (January 26, 2012).
See Social Security Administration,
“Medicare Premiums: Rules for Higher-Income Beneficiaries,” December 2011, at
http://www.socialsecurity.gov/pubs/10536.pdf (January 26, 2012).
Health Care Initiative of the Leadership for America Campaign
J.D. Foster, Ph.D.
Norman B. Ture Senior Fellow in the Economics of Fiscal Policy
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