Domenici/Rivlin Urge Super Committee To Partially Privatize Medicare

Former Sen. Pete Domenici (R-NM) and former Clinton budget director Alice Rivlin are calling on the Super Committee to partially privatize the Medicare program for future retirees, the Hill’s Erik Wasson reports. The two budget hawks offered the proposal as part of the Bipartisan Policy Center last year, and are expected to tell the 12-member bipartisan deficit panel today that the plan is “the only reasonable, bipartisan plan to fundamentally reform that program, make it more efficient, and preserve it for future generations.” Here are the details:

The Rivlin-Domenici plan alters Medicare by giving future seniors the choice of private plans in addition to traditional Medicare. Those using the private plans would receive payments to help cover the costs of premiums. The plan differs from the controversial Medicare proposal approved in the House-passed 2012 budget which would end traditional Medicare.

Rivlin will testify that although the federal contribution would be capped at GDP growth plus one percent, “excess costs, if any, would result in an increased premium, but low and moderate income beneficiaries would be protected from these increased payments.”

The proposal is only a slight modification on Rep. Paul Ryan’s (R-WI) controversial privatization scheme and will shift costs to seniors rather than lower them. Domenici and Rivlin preserve traditional Medicare as an option for future retirees — seniors would have a choice between staying in traditional Medicare or spending their pre-determined government vouchers on private insurance coverage — but analysts who have studied similar plans argue that younger and healthier beneficiaries would have an incentive to leave the traditional program for managed care, creating a severe adverse selection spiral for seniors who remain in traditional Medicare. Seniors would also pay more for coverage because the government’s voucher would not keep up with increasing health care costs, while private insurers could theoretically design their plans in order to cherry pick the healthiest applicants out of traditional Medicare.

Henry Aaron — who developed the concept with Robert Reischauer in 1995 — has since walked away from the proposal and has said the Affordable Care Act may push Medicare to use its leverage to create much more substantial savings than the “competition” created within Medicare.