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August 1, 2012

Potential Consequences of Reforming Medicare Into a Competitive Bidding System

Author Affiliations

Author Affiliations: Department of Health Care Policy (Drs Song and Chernew), and Francis Weld Peabody Society (Dr Song), Harvard Medical School, Boston; National Bureau of Economic Research, Cambridge (Drs Song, Cutler, and Chernew); and Department of Economics, Harvard University, Cambridge (Dr Cutler), Massachusetts.

JAMA. 2012;308(5):459-460. doi:10.1001/jama.2012.7909

The idea of a premium support (or voucher) system for Medicare has generated substantial debate. Under premium support, Medicare beneficiaries would choose from health plans that compete in a market-based bidding system. In some models, traditional Medicare is abandoned entirely in favor of private health plans. In other models such as the Ryan-Wyden plan, traditional Medicare becomes one option among many.

Proponents of premium support cite 2 potential strengths. First, competition may lower health care spending. Second, by pegging the Medicare contribution to one of the lower-cost plans and limiting the increase in the government's contribution over time, public spending on Medicare will slow.1 Critics state that bidding essentially shifts costs to beneficiaries by increasing their required premiums.2

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