10.2: Medicare Budget & Financing System

[Institute] a Medicare budget and financing system.

Other Information:

A Medicare Budget and Financing System. During the first five years of the new Medicare program, the government's annual contributions to enrollees' plans are based on the weighted average premium of participating health plans' bids on a regional basis. The plans bid to provide Medicare benefits plus catastrophic coverage and, just like the FEHBP, are weighted on plan enrollment. Thereafter, the government contribution is based on the premium bid of the lowest-cost health plan that meets the required level of quality and provides an adequate range of benefits. In both cases, the per capita government contribution on the basis of the plan bidding is set at 88 percent of the bids. By comparison, the FEHBP contribution is set at 72 percent of the national average weighted premium, and the original Medicare Part B premium contribution was set at 50 percent in 1965. The Heritage plan also caps total Medicare spending. The spending cap is indexed annually for inflation using the Consumer Price Index plus 1 percent and Medicare population growth. If Medicare spending exceeds the cap, the government's contribution declines from 88 percent to the percentage that complies with the Medicare spending cap, thereby pressuring the competing plans and providers to control costs more tightly.

Indicator(s):

Indicator:1

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