What does the Heritage Foundation have to say about saving Medicare:Study released May 10, 2011 (Part 4)

Would a Public Option Hurt Competition? – David Hyman


“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 Details

A Defined Contribution Adjusted by Income. Five years after enactment,
all new retirees receive a contribution (premium support) from the
government, just as federal employees and retirees do today. They can use this
contribution to choose Medicare’s premium-based FFS plan or one of the other
health plans. After one year of operation, Medicare enrollees in the traditional
Medicare FFS program are free to join the new Medicare premium-support program.
They can then choose a premium-based FFS plan or an alternative.

During the first five years of the premium-support program, the government’s
contribution is based on the weighted average premium of the regional bids of
competing health plans. After the first five years, the government contribution
is based on the lowest bid of competing plans in a region. The bidding system
will be phased in and will include the bids of the competing managed care plans,
other private plans, and the Medicare premium-based FFS plans offering an
approved range and quality of services.

Under the Heritage plan, low-income enrollees receive the full Medicare
defined contribution. The amount of the defined contribution starts to phase out
for Medicare enrollees with annual non–Social Security incomes between $55,000
and $110,000 and couples with incomes between $110,000 and $165,000. Enrollees
with incomes over $110,000 and couples with incomes over $165,000 receive no
government contribution and pay full, unsubsidized premiums. As with Social
Security, married couples can decide whether they want to qualify for benefits
as individuals or jointly as a couple. The phaseout income levels will be
inflation-indexed. However, Medicare remains a valuable program for
higher-income seniors because they retain access to a guaranteed-issue and
community-rated insurance program.

Under the Heritage plan over 90 percent of seniors would receive the full
defined contribution. Only just over 3.5 percent have such high incomes that
they would pay the entire premium without any contribution from the

This income-adjustment of Medicare is not new. Today, for instance, Medicare
Part B and Part D premiums are changed significantly according to income. For
single retirees, Part B premiums can range widely, from $96.40 per month to as
much as $369.10 per month, depending on their income. Upper-income retirees can
pay as much as $69.10 per month more for the same Part D coverage as a
lower-income senior. What the Heritage plan does is rationalize the income
adjustment of Medicare so that it fulfills the true insurance purpose of the
program while assuring that the program will be available for future

Percent of Defined Benefits Contribution for Medicare Beneficiaries, by Income

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