What does the Heritage Foundation have to say about saving Medicare:Study released May 10, 2011 (Part 3)

The Public Option’s Unfair Advantage? Gov’t Bailouts – Michael Cannon

“Saving the American Dream: The Heritage Plan to Fix the Debt, Cut Spending, and Restore Prosperity,” Heritage Foundation, May 10, 2011 by  Stuart Butler, Ph.D. , Alison Acosta Fraser and William Beachis one of the finest papers I have ever read. Over the next few days I will post portions of this paper, but I will start off with the section on Medicare.

The Reformed System. When the changes are fully phased in, seniors
will enroll in the health plans of their choice and receive a defined
contribution (known as premium support) toward the cost of their plans, much as
Members of Congress and millions of federal employees and retirees do through
the FEHBP. Unlike today, all plans will include catastrophic protection. Thanks
to the structure and insurance rules in Medicare, the premium support will be
sufficient for seniors to afford an adequate level of benefits, regardless of
age or health care condition.

The range of choices in the transformed system includes Medicare
premium-based fee-for-service insurance as well as other fee-for-service plans,
Medicare Advantage plans, managed care plans, association plans, and
Taft–Hartley Act and employer-based plans. Existing health savings accounts
(HSAs) can also be carried into retirement.

Medicare’s basic rules for insurance are retained, together with an improved
risk-adjustment mechanism to offset the impact of any adverse selection.
Under the reformed system, Medicare’s Center for Drug and Health Plan
Choice, whose mission today is to identify abuse and oversee marketing rules for
Medicare Advantage and Medicare drug plans, carries out that function for all

Beyond retaining the Medicare insurance rules, the reform provides for fiscal
solvency and reserve requirements for all health plans to ensure that plans have
the financial resources to pay insurance claims. It also provides marketing
rules to protect consumers against fraud and a requirement that benefits be
described in plain English without surprises or denials in fine print. By
increasing choice and competition, the reformed Medicare program will deliver
better care and provide true health care security for less money than under
current projections.

The cash value of premium support is reduced for upper-income seniors and
eventually phased out for those with the highest incomes. However, all seniors
will have access to the same Medicare system with no need to buy a separate plan
to cover catastrophic expenses. Poor seniors remain eligible for Medicaid
assistance. Like the Social Security adjustments in retirement age, Medicare’s
eligibility age becomes 68 in 10 years and is indexed thereafter for increases
in longevity.

During the five-year transition period, Medicare’s traditional
fee-for-service system also changes. Part A costs are offset by a new premium
payment system for upper-income retirees. The premiums for Parts B and D rise
according to income. The highest-income seniors pay an unsubsidized premium for
Parts B and D during the transition.

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