Congress is weighing proposals that include converting Medicare to a voucher system and changing medicare and medicaid funding.
Congress is weighing proposals that include converting Medicare to a voucher system and changing medicare and medicaid funding.

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Growth in Medicare— and in proposals to change how it is funded

Table of Contents

Growth in Medicare

Medicare is a program undergoing significant growth, and there are several proposals on the table that could change medicare and medicaid funding.

There are Two types of plans

Medicare delivers care through two main programs: Original Medicare (Part A and Part B) and the Medicare Advantage Plan (Part C). The original plan is fee-for-service with patients free to choose their physicians and hospitals (assuming the providers accept Medicare).

Under Medicare Advantage (MA), patients sign up with a private company approved by Medicare, and the plan is responsible for delivering care. Medicare Advantage plans generally are HMOs or PPOs where the patient’s choice of providers is more limited.

A patient will pay a higher share (or potentially all) of the costs for out-of-network care. Medicare Advantage plans receive a fixed amount each month per enrollee from the federal government.

Medicare Advantage plans usually offer benefits to patients that are not available under original Medicare, such as coverage of vision and dental care. Enrollment in Medicare Advantage plans has increased more than 70 percent since 2010 to about 19 million, according to the Kaiser Family Foundation.


A proposal to allow private contracting with patients

Among the proposals to change Medicare is one to allow physicians who participate in Medicare to enter into contracts with patients to pay more than the Medicare rates. Under current law, physicians who participate in Medicare agree to accept the Medicare fee schedule and not balance-bill the patient for anything beyond the 20 percent copay that is paid by the patient or the patient’s supplemental insurance.

Physicians who opt out of Medicare are free to charge whatever they wish. Psychiatrists make up the largest portion of the opt-out group. Under current law, a physician who opts out must do so for all of the physician’s Medicare patients.

Proposals to change the law would allow physicians to obtain reimbursements at normal rates from Medicare and balance-bill the patient for an agreed additional amount. The additional payments could be determined on a patient-by-patient or service-by-service basis.

Medicare stats

38.1MPeople enrolled in original Medicare
20.1MPeople enrolled in original Medicare Advantage and other health plans
$590BProjected cost of Medicare (2016)
5.4%Projected growth in spending in 2017
15%Percent of federal budget spent on Medicare (2014)

A report by the Kaiser Family Foundation notes three arguments in support of these changes:

  • Higher payments to physicians to offset what some view as unduly low payments from Medicare that do not keep up with practice costs.
  • Increasing the number of physicians willing to accept Medicare patients.
  • Reducing costs to patients who wish to see physicians who had opted out of Medicare since Medicare, under the new program, would pay part of the costs.

The Kaiser report also notes drawbacks to the proposal:

  • Costs would increase for patients who enter into such contracts with their physicians. Added payments may be unaffordable, especially for the half of Medicare enrollees who live on $24,000 or less per year.
  • If physicians decide to see only patients who are willing to pay more than the Medicare rates, access to physicians will be reduced.

A plan to convert Medicare into a voucher plan

Another proposal is to convert Medicare into a system of “premium support”—also referred to as a “voucher” plan. Instead of having the government pay health care bills directly to providers, as is done under original Medicare, the government would provide a fixed dollar amount to Medicare beneficiaries who would use the money to purchase insurance in the private market or in the original Medicare program.

If the level of premium support does not cover the full cost of insurance (which is likely), the beneficiary would have to make up the difference. Some versions of the premium support proposal also would allow insurance companies to provide different levels of benefits. Under current law, all Medicare beneficiaries receive a base level of benefits.

Another uncertainty regarding the premium support proposal is the future of Graduate Medical Education (GME). The current Medicare program heavily subsidizes GME. The premium support plan does not specify how GME will be funded.

Jeff Atkinson is a professor for the Illinois Judicial Conference and has taught health care law at DePaul University College of Law in Chicago.


Jeff Atkinson

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