July 30, 2014

CBO Analyzes ‘Premium Support’ Options for Medicare

  • The national debt has grown significantly in recent years due to rising annual deficits. A deficit occurs in any year the government spends more...

The Congressional Budget Office (CBO) recently released a report examining the viability of two “premium support” alternatives to the fee-for-service structure in Medicare.

Both alternatives would have the federal government pay subsidies to insurance companies offering plans providing the same benefit coverage as the current Medicare fee-for-service model. They would differ in how subsidies would be calculated and thus in the premium savings for seniors.

Premium support has been suggested by bipartisan groups like the Domenici-Rivlin task force to curb the unsustainable growth in Medicare spending as the population ages.

Under either option analyzed by CBO, if consumers selected a plan that cost less than the government subsidy, they would pay less out of pocket than they currently do under Medicare. However, there is also the risk that seniors could pay more, depending on the plan choice. Traditional fee-for-service Medicare would also remain an option, but perhaps with premium increases.

Relative to current policy, CBO projected, the government would spend from 4 to 11 percent less on Medicare, depending on the design of the subsidies. The savings would result from two factors: insurance market competition and seniors choosing less expensive plans. 

Premium support is a viable option to control Medicare spending over the long term -- something necessary for a sustainable fiscal future. However, plan design and whether there is a cap on Medicare spending (which neither CBO option had) could make a substantial difference in budgetary savings.