Why Paul Ryan’s Medicare Plan Is Worse Than Past Premium Support Proposals

As he backed away from House Budget Committee Chairman Paul Ryan’s (R-WI) Medicare proposal during yesterday’s Health Affairs event, House Ways and Means Committee Chairman Dave Camp (R-MI) argued that the premium-support model advanced by Ryan “is not a new concept, and is one that was introduced by a Republican and a Democrat.” Camp is partly right, but Ryan’s plan differs from past efforts in several key respects that make his proposal far more politically toxic and reactionary.

“Premium support” — a proposal under which the federal government contributes a set amount towards the purchase of Medicare coverage — has been previously offered by Sens. John Breaux (D-LA) and Bill Frist (R-TN) in 1999 and 2001, and garnered some Democratic support. But unlike Ryan, Breaux and Frist replaced the current Medicare program with competing health plans, while maintaining the CMS-sponsored Medicare fee-for-service coverage as an option. They also offered seniors a premium support that did a better job of keeping up with health care costs (and insulating seniors from sudden prices increases).

Under Breaux/Frist, the Medicare contribution towards a beneficiary’s coverage was set as a percentage of actual plan bids for a comprehensive set of benefits; the beneficiary paid the difference between the plan bid and the government’s contribution (which is indexed to average costs). Ryan gives seniors a predetermined amount of money beginning in 2022 (with lower income and chronically ill seniors receiving more) and grows that support with inflation, leaving beneficiaries to absorb the much higher increases in health care costs. He shifts all financial risk from Medicare to seniors by having them shoulder the precipitous rise in health care spending without substantially increasing the government’s contribution.

As Henry Aaron — who developed the premium support concept with Robert Reischauer in 1995 — points out, Ryan’s plan also lacks three safeguards designed to protect seniors: 1) the number of plans that could be offered would be limited and specified by a regulatory agency, public or nonprofit; 2) the same agency would prepare materials explaining the alternative plans, provide counseling to buyers, and handle all sales; and 3) the government would redistribute premiums among insurance plans to offset any financial advantage that any insurer might secure by enrolling low-cost customers.

Aaron has since walked away from even this more progressive version of “premium support,” arguing that the “gains from being able to choose among competing insurance plans have been exaggerated” and that the Affordable Care Act may push Medicare to use its leverage to affect change in the way health care is delivered.