A Kinder, Gentler Ryan Plan for Privatizing Medicare

In the twisted logic of Congress, Rep. Paul Ryan (R-WI), who supports repeal of the Affordable Care Act, is now advocating transforming Medicare into a premium support plan that would look a lot like the health insurance exchanges at the heart of the ACA. Like the state-based exchanges, the new Medicare proposal, co-sponsored with Sen. Ron Wyden (D-OR), would give seniors a voucher to purchase their choice of private health plan. And like the ACA, “managed competition” is the goal in that participating plans must provide a minimum set of benefits and conform to other regulations that prevent cherry-picking healthy seniors and set limits on out-of-pocket expenses. In the Ryan-Wyden plan, there’s also (gasp) a public option—traditional fee-for-service Medicare—a key initiative that progressives had to sacrifice to get the ACA passed.

The details of this “bipartisan” plan are still not completely worked out and most pundits give the plan little chance of advancing before the 2012 elections. And so far Wyden is the only Democrat to publicly endorse this plan—the Obama administration denounced it outright; “We are concerned that Wyden-Ryan … would undermine rather than strengthen Medicare,” said spokesman Jay Carney. “At the end of the day, this plan would end Medicare as we know it for millions of seniors.” Another spokesman invoked Newt Gingrich’s 1995 statement that Medicare would “wither on the vine”  when faced with competition from private insurers.

But despite the administration’s opposition, the proposal gives Republicans an alternative to Ryan’s House GOP budget plan that would have turned Medicare into a privatized voucher program, raised the age of enrollment to 67 and, according to the Congressional Budget Office, would have forced seniors to pay for up to two-thirds of their own care. So, in essence, the Ryan-Wyden plan is a way for the GOP to try and regain some of the support from older Americans that they may have lost by threatening to “change Medicare as we know it.”

This is a key turnaround for Ryan and his fellow conservatives, one that they have deemed a necessary evil. That’s because despite the fact that a vast majority of Americans see health care’s rising costs as a serious problem, a recent Washington Post-ABC News poll found that nearly 80 percent oppose cutting Medicare. This new proposal is a natural outgrowth out of the failed super-committee negotiations where similar ideas about “harnessing market forces” to cut spending by turning Medicare into a premium support program were discussed. In fact, the plan is very similar to one proposed recently to the deficit-cutting  committee by Alice Rivlin, former director of the CBO and most recently, member of the President’s Debt Commission.

It’s not clear why Ron Wyden, long-time advocate for seniors and co-sponsor of the Healthy Americans Act, a health reform bill that included an individual mandate, would agree to sign on to this new plan with Ryan. Maybe Wyden is actually is trying to rise above partisan politics and sees the competition between private plans and a public program to be an important driver of cost savings. He says as much on his website  where he responds to his party’s dismayed critics by insisting that the proposal is a way to engage Democrats and Republicans in a “constructive conversation about how best to save and strengthen Medicare.”

Still, Ezra Klein writes that Wyden “used to say that the fundamental compromise in health care was that Democrats wanted universal coverage and Republicans wanted choice. Wyden is going to find Democrats are not very happy with him for this compromise because he let Ryan wiggle out of his side of the deal: Wyden is a Democrat signing onto a major choice-based reform, but Ryan, as a Republican, is still calling for the full repeal of the Affordable Care Act, and he has never proposed a universal-coverage plan to replace it.”

The basic premise of premium support, as I’ve written in an earlier post, is that when private plans compete on price and service for customers, the result is to lower spending in the Medicare program. (For further reading, The Brookings Institute has just released a primer that offers views from experts on both side of the premium support issue—including Alice Rivlin and Henry Aaron) The assumption is that private insurers will be able to cover seniors and the disabled who qualify for Medicare at a lower cost than the existing government program. The problem is that there is no evidence that this is actually the case. First of all, the Congressional Budget Office has estimated that Medicare spends 11% less than private insurers for the same set of benefits. Privately run Medicare Advantage plans, which are skewed toward a healthier population in the first place, continue to have higher costs than the traditional government program.

As Judy Feder, a professor at the Georgetown University Public Policy Institute said today during a video-taped discussion at the Bipartisan Policy Center, Medicare vouchers remain a new and untested program. As the pressure mounts to introduce premium support into the program, the assumption is that evidence supports the notion “that private insurers have provided equitable access to care and that the government program has done a lousy job,” says Feder. “But the opposite is actually true.” Relative to private insurance, she adds, “Medicare performance is extraordinarily impressive.”

That’s not to say that Medicare isn’t ripe for a serious overhaul that includes shifting payment to evidence-backed treatments and services, reducing waste and abuse, a focus on reducing hospital readmissions and improving coordination of care for people with chronic illness. The system does need reforming, and the Affordable Care Act has ample provisions and cost restraints to do just that. Early adoption of some of these techniques is already slowing the growth in Medicare spending.

The truth is that private insurers, concerned with shareholders and profits, will ultimately want to focus on serving the healthy and avoiding the sick. Strong government regulation and oversight will be necessary for the program to function as planned and for everyone to be able to obtain and afford coverage. According to Merril Goozner, writing for The Fiscal Times, the Ryan-Wyden plan doesn’t have provisions for state or even federal health insurance exchanges; all oversight and regulation will be the responsibility of the “Medicare bureaucracy…the same bureaucracy that many Republicans until recently blamed for most of the system’s woes.”

Premium support is an idea gaining political ground. At its most basic, it’s a new name for a voucher system, an idea that thrilled conservatives but fell flat with seniors. In its latest incarnation the voucher plan looks more attractive to some moderates because in theory, the plans will be regulated, must provide a minimum set of benefits, and are not allowed to discriminate against the oldest and sickest Americans. In the Ryan-Wyden proposal, there is a cap on cost growth “of 1 percent over Gross Domestic Product, plus inflation,” just like in the ACA. Savings will not necessarily come from increasing premiums—but rather from cutting providers payments and asking wealthier seniors to pay more for their care.

But this is all theoretical. What we do know is that Medicare as it stands now represents some 47 million consumers. This enormous pool of beneficiaries means that risk is well distributed, and the program wields great bargaining power over providers. As Feder points out, Medicare pays hospitals about 30% less than private insurers, and about 20% less to doctors. Which brings up the fundamental question of why are we trying to divide up Medicare’s purchasing power in the first place? Why is the fixation on “market forces” driving down spending—something that hasn’t panned out in Medicare Advantage, the Federal Employees Health Benefits Program or in Massachusetts—so enduring? “Beats the hell out of me,” says Feder.

Igor Volsky writes on Think Progress that Ryan and Wyden acknowledged in the Washington Post that their premium support plan might not end up saving more than is expected under the current health law. “Yet they’re willing to set the nation on an untested path of private competition that breaks up the large market clout of Medicare (which is now experimenting with more efficient ways to pay providers) and pushes seniors into less efficient private plans. It moves the health care system closer to the Ryan ideal in which future Congresses would be able to reduce federal costs by eating away at the premium credit seniors receive. Over time, Medicare will start bleeding beneficiaries, becoming an ever smaller program.”

All of these voucher plans; Rivlin-Domenici, Ryan’s budget proposal, Ryan-Wyden, and those that will inevitably follow over the course of the election cycle, take an unnecessary gamble for the sake of some ideological dedication to the magical “market forces.” Medicare is the wrong venue to test this idea. Seniors are already confused by having to choose from a list of hundreds of private drug plans in Medicare Part D and between regular Medicare and Advantage options. They get locked into Medicare Advantage plans and find out later that if they are unhappy they will not be able to recoup supplemental insurance once they transfer back to the traditional fee-for-service plan. Most of the sickest and oldest beneficiaries are just not capable of “comparison shopping” for health care.

And finally, there is no evidence that these plans will save money or provide better care for seniors.