Financing medicare into the future: Premium support fails the risk-bearing test

Research output: Contribution to journalComment/debate

Abstract

One often-discussed option for controlling Medicare spending is to switch to a premium-support design. This would shift part of the risk of future health care cost increases from the federal treasury to Medicare beneficiaries. The economics of risk bearing suggests that this would be a mistake for three reasons. First, political decisions, not beneficiary choices, are the critical determinants of future health care costs. Second, only Congress can take into account the consequences of cost-containment decisions for both current and future generations. Third, the federal government is best able to diversify against the risk of future cost growth. Tying Medicare spending to the government's budget so that Congress sees the benefits of tough cost containment choices is the only way to force the program to make those politically difficult decisions. Economic efficiency is served by retaining the program's current structure instead of shifting risk to beneficiaries.

Original languageEnglish (US)
Pages (from-to)1073-1078
Number of pages6
JournalHealth Affairs
Volume37
Issue number7
DOIs
StatePublished - Jul 1 2018

ASJC Scopus subject areas

  • Health Policy

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