March 31, 2011
Honorable John Boehner
Honorable Harry Reid
Honorable Nancy Pelosi
Honorable Mitch McConnell
Dear Speaker Boehner, Leader Pelosi, Leader Reid, and Leader McConnell:
Medicare is in serious financial trouble. Spending is growing faster than Medicare’s revenue, and there is no end in sight. This year, Medicare is expected to spend $568 billion. In ten years, spending will reach almost $1 trillion. According to the Congressional Budget Office, the hospital insurance trust fund will run out of money by 2020. Medicare is too important to allow it to fall into bankruptcy.
The budget resolution that will soon be adopted by the House of Representatives is likely to include a call for Medicare reform. The key to that reform is premium support, which can restore fiscal health to the program by promoting more efficient and effective health care for America’s seniors.
The premium support concept has long been recognized as a prudent approach to financing health and retirement programs. It is a new way of structuring the financing of Medicare benefits that gives beneficiaries more control over their health choices and spending. Medicare beneficiaries would be granted an annual subsidy that reflects the costs associated with their health status and their financial wherewithal. This premium support arrangement would reverse the incentives now in Medicare that promote wasteful spending.
Premium support would benefit seniors and taxpayers. Medicare would remain a guaranteed benefit, but seniors would be free to choose a health plan that best meets their needs. Having more control over their health care spending would encourage consumers and patients to make better health care choices. It would stimulate more innovative and accountable competition by health care providers and give them incentives to better coordinate the care of their patients. Enhanced competition could offer seniors relief from rising Medicare premiums. Just as important, this reform could begin to ease the crushing tax burden imposed by the current program on our children and grandchildren.
The concept of premium support has been endorsed by numerous experts and commissions—including a majority of the National Bipartisan Commission on the Future of Medicare, chaired by Senator John Breaux and Representative Bill Thomas in 1999, and the Bipartisan Policy Center’s Task Force on Debt Reduction, chaired by Alice Rivlin of The Brookings Institution and former Senator Pete Domenici in 2010.
We believe that policymakers should not wait any longer to address the growing fiscal crisis in this country. Responsible reform of Medicare is a major component of any plan to place the country back on a sustainable fiscal path.
[Affiliations are listed for identification only, and do not imply endorsement by the individual’s institution.]
Sally C. Pipes
Tomas J. Philipson, Ph.D.
Bryan Dowd, Ph.D.
H.E. Frech III, Ph.D.
Andrew J. Rettenmaier, Ph.D.