CBO Analysis of Two Premium Support Options
The Congressional Budget Office (CBO) issued a report on two premium support options for reforming Medicare entitled “A Premium Support System for Medicare: Analysis of Illustrative Options“. The two options include a second-lowest-bid option and an average-bid option. The report assumes that they would go into effect in 2018. Medicare Advantage plans would participate in the bid submission process along with FFS, but Part D would continue a separate bidding process as under current law. Dual eligible beneficiaries would not participate in the premium support system.
The analysis finds that both premium support options would reduce federal spending for Medicare. The second-lowest-bid option would reduce Medicare spending by $45 billion in 2020 and the average-bid option would reduce federal spending by $15 billion. Beneficiary payments would increase 11 percent under the second-lowest—bid option but would be reduced by 6 percent under the average-bid option. When federal and beneficiary payments are combined, the second-lowest-bid option would reduce Medicare costs by 5 percent and the average-bid option would reduce Medicare costs by 4 percent.
CBO analyzed the impact of the premium support bids on Medicare Advantage bids and found that both options would lower MA bids by 4 percent on average compared to current bids, although the differences would vary regionally. Plans would only be able to submit two bids. CBO expects MA bids under a premium support system to be lower due to more competitive pressure. CBO assumes that MA enrollees in a premium support system would be healthier than under the current MA program and that this favorable selection would result from plan efforts to contain costs. Enrollment in private plans is expected to increase at the expense of FFS and would result in private plans paying higher rates to providers that would be closer to commercial rates than Medicare rates.
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