As an alternative, the federal contribution could be set at a percentage of the premium charged by a private plan, or the lowest-cost (plans), or it could reflect the average premium for all plans in an area. Beneficiaries could (keep) some or all of the difference if they chose a plan costing less than the federal (payment), and they would have to pay more if they chose a more expensive plan.

Because the deficit reduction panel failed to reach agreement, the government is supposed to make across-the-board cuts in spending, starting in 2013. The new budget law says that Medicare payments to doctors, hospitals and health plans cannot be (reduced) more than 2 percent in any year.

The Congressional Budget Office estimates that the automatic cuts will trim $123 billion from Medicare over 10 years. But since the cost of the (program) is still expected to total more than $7 trillion in those years, lawmakers are likely to continue the frantic search for savings.