Some Daylight in the Medicare Reform Debate

This morning’s New York Times featured a terrific editorial that provided some daylight for the left in the ongoing Medicare reform debate.  Essentially the Times rejects House Budget Committee Paul Ryan’s (R-WI) draconian approach but opens the door to examining “premium support” as thought of by Alice Rivlin, former President Clinton’s budget director, which is structured more like Medicare Part D, or even the insurance exchanges envisioned in the ACA.

Members of both parties believe Medicare could offer a fixed amount of money to beneficiaries to buy coverage from competing private plans, whose costs and benefits would be tightly regulated by the government.  Rivlin urged the Congressional deficit “Super-Committee” to establish an insurance exchange for Medicare beneficiaries where private plans would compete with traditional Medicare and would have to provide the same benefits. The federal contribution in each region would be based on the cost of the second-cheapest option, whether that was a private plan or traditional Medicare.

Rivlin’s approach is more “soft-hearted” than Ryan’s and recognizes the fundamental premise behind the success of Part D: yes, the government can create an insurance market from a green field — but it won’t accomplish its goals in savings or quality unless CMS regulates the crap out of it.  It’s market forces plus the stiff arm of regulation that makes “premium support” work.

The Times editorial follows.  Remember this sort of debate was unthinkable just a year ago, and we have President Obama and Speaker Boehner to thank for the daylight to examine this big idea.

December 3, 2011

What About Premium Support?

As the election campaign progresses voters can expect to hear a lot of hype — and if we are very lucky some good ideas — about how best to “reform” Medicare. It will take stamina and well-honed skepticism to sort it all out.

Republican politicians are touting the virtues of market competition and calling for a “premium support” plan that would give beneficiaries a set amount of money to shop among private plans for their own insurance. What they do not say is that private plans have long been more costly than traditional Medicare and have shown far less ability to slow spending. Nor do they admit that the most extreme versions of premium support — like the one championed by Representative Paul Ryan — would save the government money mainly by shifting costs to the beneficiaries, who would have to decide whether to forgo treatments or pay more for coverage.

Most Democrats have been fiercely opposed to privatizing Medicare. They believe the traditional system can be reformed to reduce costs without demolishing the whole structure. But with concerns about the rising deficit and the long-term sustainability of Medicare, some centrist Democrats are backing the premium support idea.

As Americans try to figure out who is right or wrong in this debate, here are some matters to consider:

HAS IT BEEN TESTED? The Massachusetts health care reforms already provide premium support to help low- and middle-income people buy private policies on an exchange. Unlike the Ryan plan, the program guarantees everyone a defined, comprehensive set of benefits, and officials bargain aggressively with private plans to keep their premiums down. As a result, annual cost increases have been held well below the premium increases for other private group insurance providing comparable benefits.

The Medicare prescription drug program provides support to help beneficiaries buy coverage from private insurers. The costs have been far less than initially projected, a fact that promoters of premium support trumpet. Market competition has helped, but costs have mainly been held down because many major drugs have gone off patent and have been replaced by cheaper generics.

Perhaps the strongest caution against overselling the benefits of competition is Medicare’s own track record. What critics of the current program don’t acknowledge is that over the past four decades, Medicare’s spending per enrollee has risen much more slowly than private insurance premiums — an average of 8.3 percent a year between 1970 and 2009, compared with 9.3 percent for private premiums. And the private Medicare Advantage plans that cover roughly a quarter of all enrollees cost an average of 10 percent more than what the same coverage would cost in traditional Medicare.

The lesson from all this is that it is far too early to talk about scrapping traditional Medicare. At the same time, serious analysis and testing of premium support are clearly worth pursuing.

A GOOD APPROACH The best proposal for premium support is one that gives beneficiaries choice while protecting them from any added costs if competition does not keep prices down. Enrollees would be given a set amount of money to buy a plan comparable to what Medicare now provides. If they chose a plan that cost less, they could pocket the difference. If they wanted better benefits, they would have to pay the added premium themselves. But if market competition failed to restrain costs, the federal government would increase the support given. So far, this idea has found no support among leading politicians, who apparently have less confidence in market forces than they claim.

SOME BAD APPROACHES Versions of premium support backed by Congressman Ryan and other conservatives have one primary goal: pushing down growth in federal spending on Medicare, even if it means that beneficiaries have to pay far more for coverage. These proposals tie increases in premium support to indexes, like the gross domestic product or the consumer price index, that historically have risen far more slowly than health care costs.

Proponents hope competition will lead private plans to reduce their premiums and that beneficiaries will think seriously about whether they need a costly CT scan. While competition and cost-sharing by beneficiaries could help curb overuse of services, we are skeptical that patients who are chronically ill or nearing the end of life, who account for a huge chunk of Medicare’s spending, would second-guess their doctors and choose cheaper care.

The Congressional Budget Office concluded that the Ryan plan would force new enrollees in 2022 to pay thousands of dollars out of pocket for benefits similar to those currently provided by Medicare.

THE NEXT TEST The health care reform law, starting in 2014, will provide premium support subsidies to help people with modest incomes buy private policies on new insurance exchanges. That will be the next big test of whether premium support can work to hold down costs while providing good coverage. With so many uncertainties, it would be rash to weaken or jettison the traditional Medicare program now. The good news is there is some time to get it right.