10.1: Defined Contributions
[Provide for] defined contributions adjusted by income. Other Information:
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 government.
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