The New England Journal of Medicine

How Not to Reform Medicare

Medicare reform has become a hot political issue. The program is wildly popular but expensive. It is the principal source of projected increases in budget deficits. With deficits increasingly seen as a mortal economic threat, many believe that now is the time for Medicare reform.

The reform flavor of the day is “premium support.” What is it? What are its strengths and weaknesses?

The idea dates from the mid- 1990s, when traditional Medicare provided nearly all beneficiaries “defined benefit” health insurance coverage — payment for most of the cost of whatever covered services enrollees and their health care providers deemed medically necessary. Although coverage was incomplete and out-of-pocket payments could be large, Medicare shielded beneficiaries from most of the cost of medical care as they aged and their health worsened and as ever-more-costly treatments came on stream.

At that time, some analysts proposed — and the majority of an official commission endorsed — an alternative “defined contribution” system. Instead of traditional coverage, people eligible for Medicare would receive a voucher that they could use to help pay for a standard health insurance plan. People who wanted a more costly plan would have to pay all the added cost.

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