Ritter Insurance Marketing, Craig Ritter

Is There a Consensus Building for a Fundamental Change to the Medicare System?

Robert Pear of the New York Times published an interesting article on the future of Medicare cuts in his Thanksgiving day article, “Support Builds for a Plan to Rein in Medicare Costs.”  Looking at the projected future cost of funding health benefits for our most vulnerable populations (both seniors and the disabled rely on the Medicare system), the Medicare system must be closely examined to find ways to most efficiently provide necessary care as well as ensure the viability of the Medicare system for the long term.

One of the ways to rein in costs and ensure financial solvency is to move to a “premium support” model as opposed to (or in concert with) a defined benefit model.  For years, companies have been moving away from defined benefits in favor of “defined contributions”.  This is especially true in the area of pensions and other retiree benefits such as 401(k) plans and 403(b) plans.  Companies (and now even governments) are finding it financially crippling to guarantee benefits versus making a fixed contribution.

By understanding this background, it’s a little clearer why both parties, Democrats and Republicans, are beginning to embrace a “premium support” model for health insurance benefits.  Even the funding for the new health care law is structured as a “premium support” where the amount of support is based on the individual’s income.

As with any proposal, the devil is in the details.  One of the key questions will be how to ensure that those in the most need are protected within a new system.  Also, there is concern that the most healthy may siphon off funds by choosing low cost plans with lavish “value added” benefits.  Clearly, private companies will have a financial interest in seeking out the most health Medicare beneficiaries, unless the system is properly structured.  This could create an “adverse selection” for Traditional Medicare or for plans with higher premiums and richer benefits.

Given the magnitude of the financial obligations of the US Federal Government and the massive amount of projected spending within the Medicare system, it seems prudent that the parties work exceedingly hard on a compromise with regard to Medicare that protects the existing beneficiaries and also reins in costs to protect the system for future generations.

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