Preserving and Protecting Medicare

The Congressional Budget Office (CBO) has recently issued a rather somber warning about the state of America’s fiscal health. We are faced with the return of large annual deficits and a sharp upward trajectory of federal debt, particularly as a percentage of our entire national economy, reaching 76 percent of gross domestic product (GDP) by the end of this year. It is, of course, impossible to tackle our growing fiscal problems without addressing federal entitlement spending, including Medicare.

Of federal entitlements, Medicare presents the most difficult challenge. Medicare’s Hospital Insurance Trust Fund faces insolvency in 2026. But trust fund insolvency is only one indicator of Medicare’s fiscal well-being. The more important issue is Medicare spending. The CBO noted that from 2010 to 2015, reflecting the relatively slow growth in Medicare spending, Medicare increased from just 3.5 percent to 3.6 percent of GDP.

The vast majority of today’s seniors are enrolled in a Medicare defined-contribution program, either through Medicare Advantage or Medicare Part D. While defined-contribution funding in other almost identical contexts (such as plan payment in the FEHBP) is not normally referred to as “premium support,” for all practical purposes that is what it is. Congress should expand this financing system for hospitalization and physician services, establish a level playing field among Medicare’s third-party payers, and intensify competition for all plans and providers. Congress should require a simplified traditional Medicare plan to compete, head to head, with Medicare Advantage plans, and other private options as well as employment-based plans.

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