The American Medical Association’s (AMA) Council on Medical Service recently voted to endorse a defined contribution approach to Medicare, similar to the premium support proposal in the House Republican Budget. The Council stated, “The Council firmly believes that implementing a defined contribution system, with strong regulatory protections for patients, is a responsible and feasible approach to strengthening the Medicare program. The Council recommends that the AMA support transitioning Medicare to a defined contribution program that would enable beneficiaries to purchase coverage of their choice through a Medicare exchange of competing health insurance plans,” while preserving traditional Medicare as an option within the Medicare exchange. While the Council recommended the annual growth adjustment to premium support be pegged to changes in health care costs, as opposed to GDP growth as in the House budget, the model supported to by the Council is nearly indistinguishable to the House’s plan for saving Medicare.
The Council affirmed the “urgent need for change” given Medicare’s fiscal troubles and weaknesses in benefit design, “as evidenced by the fact that nearly 90 percent of Medicare beneficiaries have some form of supplemental health insurance (e.g., a Medigap policy or retiree coverage through a former employer), or are enrolled in a Medicare Advantage (Part C) plan.”
Today, the Medicare program has a defined benefit structure that “restricts patient choice, and in so doing, removes incentives that could help limit spending growth by leveraging private market innovation…A defined contribution system is likely to result in lower rates of health care spending growth, since insurers would be competing on price as well as benefit design, and would be directly accountable to patient demand for high-value, high-quality services,” according to the Council’s findings. The current program will also lead to Medicare’s insolvency in 2024.
The Council noted that the defined contribution amounts should vary based on beneficiary age, income and health status, with older, lower income and sicker beneficiaries receiving larger contributions. These elements are similar to those contained in the GOP budget.
Policy makers are not the only ones supporting premium support in greater numbers. According to a September survey, overall, 55 percent of Americans prefer to keep the Medicare status quo (which the GOP budget would allow anyone to do), while 37 percent would prefer to move toward a premium support system. The September survey also found that younger Americans are more likely to embrace moving to a premium support system in Medicare. About 50 percent of Americans under age 55 want to keep the current system, 44 percent want to move toward a defined contribution system. Without action, however, Medicare will go bankrupt by 2024. As such, comparing any proposal to structurally reform Medicare without acknowledging the future trajectories of the current program is disingenuous. When told that the premium support proposal was needed to sustain Medicare for future generations, 25 percent of traditional Medicare supporters were more interested in making changes. A similar survey completed in February 2012 found that 25 percent of Americans would prefer to move toward a premium support system. As more Americans learn the truth about Medicare’s solvency, the more likely they are to be receptive of changes to ensure its solvency for current and future retirees.
Staff Contact: For questions or further information contact Lisa Collins at 5-2045.