The future of Medicare is moving to the front of the public policy agenda, propelled by the retirement of the boomer generation. To secure this future, in the May 2013 issue of Health Affairs, colleagues at the Commonwealth Fund and I described a new Medicare plan option called "Medicare Essential" that would protect beneficiaries and emphasize high-value care.

We proposed offering Medicare beneficiaries a comprehensive plan covering Medicare Part A, B and D benefits with a single premium and reduced cost sharing that eliminates the need to buy a private drug plan and private supplemental coverage. A single $250 deductible would cover hospital and physician services, with no deductible for prescription drug services or preventive care, modest co-payments for physician visits ($20 for primary care, $40 for specialty care, and $50 for emergency department visits), and would place a ceiling on total out-of-pocket beneficiary costs ($3,400).

This benefit redesign would be combined with optional innovative Medicare provider payment methods now being tested by the Center for Medicare & Medicaid Innovation, such as blended payment for primary care practices in the Comprehensive Primary Care initiative, bundled payment for care improvement, and shared savings or partial or full capitation for accountable care organizations. Providers participating in these payment methods would be designated as high-value providers.

Beneficiaries seeking care from health care providers that participate in these innovative payment methods would share in the savings that accrue from better care. Deductibles would be waived for beneficiaries registered with a patient-centered medical home or enrolled in an ACO, and cost-sharing reduced for PCMH or ACO referral to specialists and lab and diagnostic services. The overall ceiling on out-of-pocket costs would be lowered to $2,000 if in a certified ACO network.

Actuarial estimates indicate that beneficiaries could save 40 percent in out-of-pocket costs and premiums compared with those covered under current law with Medicare A/B/D plus Medigap supplemental coverage, for a total of $63 billion over 2014–2023. These beneficiary financial incentives would reinforce broader payment reforms to spur delivery system innovation, improve care and lower total health system costs. Estimated total system savings over 2014–2018 include $180 billion.

The approach also would reward hospitals, health systems and physicians meeting high standards of care at lower costs. Unlike the current fee-for-service system, high-value providers would benefit systematically through gains in market share and higher margins on provision of services. It should accelerate efforts to improve transitions in care across care settings, better coordinate care, help to prevent medical errors, and eliminate wasteful duplication of tests and services.

With the aging of the boomers — many of whom are not financially prepared for retirement — it makes sense to reform Medicare with a view to improving financial protection for beneficiaries as well as total system savings. An approach such as Medicare Essential would secure access with financial protection for all beneficiaries. If combined with payment reforms, this enhanced plan would promote a more affordable care system for the nation — one that achieves the aims of better care, better outcomes and lower costs.

Karen Davis, Ph.D., was president of the Commonwealth Fund from 1995 to 2012. She is the Eugene and Mildred Lipitz Professor in the department of health policy and management, and director of the Roger C. Lipitz Center for Integrated Health Care at the Bloomberg School of Public Health at Johns Hopkins University. She is the recipient of the 2013 TRUST Award from the Health Research & Educational Trust. She can be reached at

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