Jonathan Cohn explains that Rep. Paul Ryan’s (R-WI) pending Medicare reforms — so-called premium support — would transform the program from a defined benefit system, in which all seniors are guaranteed a certain set of health care benefits, to a defined contribution, under which the government would contribute a certain amount towards the purchase of private coverage. In practicality, this means that Republicans would take seniors currently under 55 out of traditional Medicare and give them a choice of private insurers that (for a multitude of reasons, including profit and overhead) don’t have a terribly good track record of controlling health care spending and have spent more per enrollee most years than Medicare. “[T]he government will pay about the first $15,000 in premiums” and “those who are poorer or less healthy would receive bigger payments than others,” the Wall Street journal reports. Seniors who choose a plan that costs more than the government’s contribution would be responsible for paying the difference between the two, while those who choose a plan a that costs less may be eligible for a rebate.
It’s unclear how the $15,000 contribution is determined. Ryan has said that he is moving away from the waiver proposed in his Roadmap, meaning that the premium support may hinge not on some predetermined amount, but on actual bids submitted by private insurance companies. Such an approach would better insulate seniors from sudden premium increases (since the government contribution would automatically increase if costs do), but beneficiaries will still face very significant changes:
1) INCREASED COSTS FOR LOWER INCOME SENIORS: Ryan is suggesting that lower-income seniors would receive a larger premium support, but since the goal of reform is to lower federal spending on Medicare, it’s likely that the government’s premium support won’t keep up with premium increases. As a result, seniors who may not be able to afford to pay anything above the government contribution may be stuck in cheaper and perhaps lower quality health plans that contract with lower quality providers or cover fewer expensive tests and procedures. Also, if the costs of premiums increase more rapidly than beneficiaries’ incomes, poorer seniors, find themselves unable to afford a higher-cost option.
2) INCREASED COSTS FOR SICKER SENIORS: Insurers would be encouraged to design policies that attract a healthier segment of the Medicare population by either advertising certain health benefits (like gym memberships) while under promoting benefits (like cancer treatment) that would enlist sicker applicants. This would lead to an “adverse selection” problem in which healthier beneficiaries will gravitate towards certain plans, increasing the costs for sicker individuals who need a broad range of services.
3) CONFUSION OVER POLICY OPTIONS: Seniors may have a hard time choosing and discerning between different health care plans, potentially enrolling in a plan that does not work well for them. Moreover, since plans will likely submit different bids every year, the government’s premium support may change annually, meaning seniors’ health care spending or health plan would also change frequently. Also, if insurers are not required to offer a standard set of benefits, seniors may have a hard time making a real apples-to-apples comparison of different policies.
All this represents a very serious change for a program that has remained fairly consistent since its enactment in 1965. Medicare premium support looks a lot like the managed competition arrangement that Republicans are seeking to repeal in the Affordable Care Act. But that actually represents a great step backwards for Medicare, which — unlike the ACA — was founded on the philosophy that all seniors are entitled to equal coverage and that economic risk should be spread across the rich, poor, healthy and sick. These reforms would segment seniors into different plans on the basis of health status and ability to pay, shift the costs and risks of insurance onto individual beneficiaries, and give private insurers a whole lot more control over the health care market.
It’s worth pointing out that a Congressional Budget Office analysis of a similar proposal Ryan offered along with Alice Rivlin argues that given the higher costs of private coverage — private insurers are less efficient than Medicare — beneficiaries will have to spend more for the same amount of coverage:
Voucher recipients would probably have to purchase less extensive coverage or pay higher premiums than they would under current law, for two reasons. First, most of the savings for Medicare under the proposal stem from reducing the amounts that the federal government would pay for enrollees on a per capita basis, relative to the projections under current law. Second, future beneficiaries would probably face higher premiums in the private market for a package of benefits similar to that currently provided by Medicare.