The Case for Testing Medicare Premium Support

The House-Senate budget conference report released last Wednesday included several interesting nuggets. Among the most surprising was the lack of explicit language endorsing the concept of premium support reforms to Medicare. Conservatives have voiced support for premium support for years—most notably in the entitlement reform proposals from then-House Budget Committee Chairman Paul Ryan—but legislative progress has been limited.

More than a decade ago, Section 241 of the Medicare Modernization Act of 2003 established a comparative cost-adjustment program for Medicare to allow privately run Medicare Advantage plans to compete directly against traditional government-run Medicare. The demonstration allowed Part B premiums for seniors enrolled in traditional Medicare to vary: If private Medicare Advantage plans bid below the cost of traditional Medicare in an area, Part B premiums would rise; but if traditional Medicare could provide care more efficiently than private Medicare Advantage plans, Part B premiums would fall. The statute limited the variation to 5% of the Part B premium, and the demonstration to no more than six metropolitan regions. It was designed to encourage seniors to choose the most efficient coverage, regardless of whether that option was private or government-run—generating premium savings for seniors and budgetary savings to the federal government.

Congress intended to start the demonstration in January 2010, with the experiment running through December of 2015. But the Obama administration never attempted to implement the program, and Section 1102(f) of the reconciliation bill used to pass Obamacare in March 2010 repealed the program.

While the recent “doc fix” legislation included an expansion of Medicare means-testing and other modest reforms, there were no provisions regarding premium support. A demonstration such as that passed in 2003—but never implemented—might point the way toward greater long-term structural impact on Medicare, even if it generated paltry short-term savings. There is policy and political value to testing its potential for success—and dampening hyperbolic rhetoric.

With premium support something of a political lightning rod, the lack of legislative proposals to test it—or otherwise—suggests an unwillingness to engage. Those who voted for past budget plans that included it are likely to take flak regardless; there are benefits to taking steps to make the policy case.

This post was originally published at the Wall Street Journal Think Tank blog.