Premium Support in Medicare

The Nation's Fiscal Crisis has Renewed the Focus on Structural Reform. Can a Market-Oriented Solution Cut Costs and Improve Care?

Medicare, the federal health program for the aged and the disabled, has been at the center of the ongoing debate over how to reduce the federal budget deficit and ensure long-term fiscal stability for the country. Medicare spending has slowed in recent years for reasons not entirely understood, although likely in part because of changes under the Affordable Care Act of 2010 and the recent economic downturn. But spending is expected to accelerate to a growth rate that outpaces that of the economy.

Over the years, various proposals have been discussed that would move Medicare away from the traditional fee-for-service payment arrangements and strengthen the role of private plans. Among them is the idea of “premium support” in Medicare, whereby the federal government would pay a fixed contribution to health plans on behalf of Medicare beneficiaries choosing to enroll in that plan.

Proponents argue that premium support would slow Medicare’s growth, foster innovation, and afford new choices for beneficiaries. However, critics fear that beneficiaries would end up pay a steadily rising share of their health care costs.

This Health Policy Brief explains premium support and examines the debate over the approach, and was published online on March 22, 2012 in Health Affairs.