As with many government programs Americans come to accept them, rely on them and then fail to support financing them as costs grow. The Medicare health insurance trust is on the way to insolvency. Total Medicare costs are growing as a percentage of government spending and GNP.
Republicans see growing costs as a problem (and so should Democrats and you) and propose changes to reduce future costs. One of those strategies is to give beneficiaries a voucher to by health care coverage. So what is a voucher program?
Think of it this way, there are two types of pension plans; defined benefit and defined contribution plans. With a traditional defined benefit plan the plan sponsor commits to a benefit as outlined in the plan and spends what is necessary to meet that commitment. A defined contribution plan sponsor on the other hand commits to spend a stated amount of money and the ultimate benefit is variable. A 401k plan is a defined contribution plan. Unlike with a defined benefit plan, the sponsor can easily determine its costs and control future increases.
Medicare is now a defined benefit type plan. There are no limits on spending. The government (taxpayers) must come up with the money to pay for whatever the program costs. Thus there are only a few ways to control costs. Reduce benefits and or the payments for those benefits or reduce the money available to pay benefits thereby shifting costs to beneficiaries. Or, of course, keep raising taxes and let the expenses grow unchecked.
A voucher program simply means the government will give each beneficiary a set amount of money to buy health insurance or traditional Medicare. But how does this save money? Because the increase in the value of the voucher (or premium subsidy as it may be called), is independent of the growth in health care costs and hence premiums.
So, let’s say there is a voucher that government increases in value by 4% each year to align with a budget. As long as Medicare premiums increase by no more than 4% there is no problem. However, if premiums increase by 5% next year and 5% the next, that extra two percent is the responsibility of the beneficiaries. That’s how a voucher program hopes to manage government spending.