Premium Support: A Primer (A Brookings Institution Paper)

From the 18 December 2011 Report

The major cause of the federal budget crisis, which is still in its early stages, is the relentless growth of Medicare spending. The two biggest causes of Medicare growth are the retirement of the baby boom generation, thus increasing the number of people on the rolls, and the persistent increase in the per person cost of medical care. The retirement of the baby boom generation is just beginning and the per person growth of Medicare, even though it has moderated slightly in recent years, tends to be well above economic growth, the growth of wages, and overall inflation. Unless something is done, Medicare will continue to consume an increasing percentage of the federal budget. According to the Medicare Actuary, Medicare will grow from 3.6 percent of the nation’s GDP in 2010 to 10.4 percent by 2080. Moreover, the interest on the money borrowed to pay for our programs, one of the most rapidly growing of which is Medicare, will greatly exceed even our spending on Medicare. Unchecked, growth in spending on Medicare and interest on the federal debt will bankrupt the country….

…If the reluctance of politicians to incur the wrath of voters can be overcome, and if the internecine fighting between the parties can be quelled, analysts and policymakers have developed two broad choices for constraining the growth of Medicare costs. The first is to call on health professionals and other experts to identify reforms that would contain costs by adopting measures such as reducing the use of redundant or unnecessary tests, reducing the use of treatments that evidence shows are not effective, increasing the use of generic drugs, and increasing the effectiveness and use of preventive care…

…The second way to contain Medicare growth is to adopt policies that harness market forces to control costs. Although controversial, premium support is perhaps the most credible approach of this type developed so far….

 

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