When Congress wrestles with Medicare reform after the election, the stage will be set for two competing models: premium support and hybrid approaches.

Premium support, which is backed by presumed GOP presidential nominee Mitt Romney and by U.S. Rep. Paul Ryan (R-Wis.), essentially hands Medicare beneficiaries an annual lump sum to buy private insurance on the private market. This proposal, designed to save Medicare money over time, would end the current multi-tiered premium model. Hybrid plans incorporate elements of both premium support and traditional fee-for-service Medicare.

If the American Medical Association (AMA), the nation's largest physician group, endorses either approach, it would provide a major political jump start for reform discussions. At the AMA's annual meeting in June, the group voted to update its position on premium support and to explore additional financing options that will be considered at its interim meeting in November.

In the past, the group supported the individual mandate of the Affordable Care Act (ACA), affordability measures and universal access. In addition, the AMA has endorsed consideration of Accountable Care Organizations (ACOs) that seek to lower costs while providing quality care.

For doctors, there's a lot at stake. Depending upon how it's structured, a premium support model may not drastically reduce their compensation. Congress has been buffeted by earlier plans to reduce physician payments by 30 percent and to implement a sustainable growth rate (SGR) fix that would more closely link medical compensation to general inflation.

To date, though, no one is quite sure how premium support would work in practice because it's never been tried in Medicare on a large scale, and details on how it would be implemented have not been ironed out. Critics of premium support, including many progressive groups, say that handing beneficiaries a fixed amount annually to buy private insurance would not keep up with rising medical costs.

While the AMA had been moving in the direction of offering premium support as a suggested model, the organization’s most recent premium support proposal has generated controversy among many of its members who oppose it or are requesting that it be studied more carefully.

"The proposal would fracture the patient pool and lead to `cherry-picking' of healthier patients by private insurers, while unhealthy patients would struggle to obtain coverage," said Washington pediatric cardiologist James Fasules, M.D., an alternate AMA delegate for the American College of Cardiology, speaking for himself at the June 17 meeting. “You think this is going to help with physician payment, by fixing a premium for insurance that is less than the cost (of care) and patients aren’t going to be able pay for it?”

The premium support debate prompted an AMA committee to withdraw its original proposal on the subject in order to refine it. The proponents also moved to change the language of the plan, calling it a "defined contribution proposal."

Endorsing premium support so close to a national election would align the AMA with the GOP's platform, which is pushing for greater privatization of Medicare. A rival doctors' group—The American College of Physicians (ACP)—lauded the AMA's recent pullback on the proposal, but urged caution. In a white paper released earlier this year, the ACP warned against moving too quickly on premium support and endorsed a hybrid approach.

“Too little is known today about the impact of a Medicare premium support on patient access to care for a risky decision to be made to transition away from the current guaranteed benefit structure,” cautioned Virginia Hood, M.D., president of the ACP, when the group's white paper was released in April. “Rather than rushing a decision, we propose testing a premium support program on demonstration project basis, with strong protections to ensure that costs are not shifted to enrollees to the extent that it hinders their access to care. Until we have reassuring data from pilots, ACP can’t support adoption of this model, just as physicians would not recommend a new treatment to our patients without data from clinical trials on potential benefits and harms.”

The ACP's position echoes the concern of many patient advocates who fear that a radical shift to privatization and capping benefits would hurt beneficiaries. The group supports combining traditional Medicare (Medicare Hospital Insurance (Part A) and Medicare Medical Insurance (Part B)) with a single deductible, higher premiums for wealthier beneficiaries, and a patient-centered home care model. The ACP proposals are similar to many ideas already offered by the Obama administration and a recent report from the Medicare Payment Advisory Commission (MedPAC).

On the broader political landscape, though, both the AMA and ACP are fueling a national debate on the future of Medicare's premium models. When the AMA changed the name of the premium-support mechanism in its proposal to "defined contribution," it shifted the semantics and context of the discussion.

Among corporate employers, defined contribution (DC) plans (for example, 401(k) plans) have overtaken defined-benefit programs as the dominant retirement funding model. The difference between the two models represents a profound shift. With DC plans, employers shifted nearly all of the risk of funding retirement to employees by handing them relatively small matching sums for investment. As a result, millions have underfunded their retirement plans, several surveys say.

In contrast, traditional defined-benefit plans employed professional firms to invest retirement funds and guaranteed monthly payments based on salary and years of service. Will the same possible DC-based transformation alter Medicare and put more beneficiaries at risk, making them unable to keep up with medical expenses during retirement? We'll know more at the end of the year when politicians—and special interest lobbies, like doctor, hospital and insurer groups—cement their positions.  

John is the award-winning author of 13 books and is a personal finance columnist/blogger for Reuters. His columns have been published in newspapers on five continents and he has appeared on various broadcast outlets including NBC, CNN and Bloomberg TV. He has earned 18 awards for his columns and investigative reporting, including the National Press Club award for Consumer Journalism.