Four Problems In Mitt Romney’s Medicare Proposal

The Huffington Post’s Jon Ward has an interesting piece about Romney’s successful roll-out of his plan to partially privatize the Medicare program for future enrollees. Romney — who had leaked aspects of the proposal during interviews — met with Rep. Paul Ryan (R-WI) before officially announcing his “premium support” proposal at the end of last week, and Ryan, in turn, gushed the he is “very pleased with these kind of entitlement reforms.”

He has a lot to be proud of. Like Ryan, Romney seeks to gradually privatize the Medicare program for future enrollees by shifting seniors into private coverage and issuing everyone a “voucher” with which to purchase insurance. Romney also preserves the traditional Medicare option — known as fee-for-service — and seniors would have a choice between using their vouchers towards the existing Medicare program or private insurance. But this approach is still problematic:

1) COMPETITION IN MEDICARE: There is still no evidence that competition between private insurers and traditional Medicare will lower health care spending. In fact, Medicare Advantage has shown us that the opposite may be true.

2) LOWER INCOME SENIORS WILL PAY MORE: Romney’s proposal does say that “lower income seniors will receive more generous support to ensure that they can afford coverage.” But the government’s premium support won’t keep up with premium increases and 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. In fact Romney’s plan admits that in geographic areas where private plans are cheaper than fee-for-service, “seniors will have to pay the difference to enroll in the traditional Medicare option.”

3) ADVERSE SELECTION AGAINST SICKER APPLICANTS: Private plans will undoubtedly be encouraged to cherry-pick the healthiest beneficiaries and leave sicker applicants to traditional Medicare. Romney’s plan does require that all plans “offer coverage at least comparable to what Medicare provides today.” However, health economists note that private insurers may still be able to attract a healthier population (and thus select against sicker applicants) by varying benefits by scope (which Romney’s plan does not specifically prohibit) — ratcheting down certain services that sicker beneficiaries rely on like chemotherapy and building up coverage for healthier applicants, like preventive services. If healthier applicants leave the traditional Medicare program, costs will skyrocket, forcing even more seniors out of the government program.

4) WHERE ARE THE COST SAVINGS: Nothing in Romney’s plan would actually reduce national health care spending. At best, this proposal simply shifts costs from the federal government to beneficiaries and private insurers. If Romney repeals or significantly weakens the Affordable Care Act, he’ll be eliminating many of the payment reform and delivery system changes that begin to reorient the incentives in the current health care system to encourage providers to offer care more efficiently. Romney does not include these changes in this proposal, meaning that all he’s doing here is shifting costs from one fairly inefficient payer (Medicare) to another even more inefficient payer (private insurers).

On top of all this, Romney’s plan would also “gradually raise the retirement age to reflect increases in longevity.” This would only save the federal government (very little) money by shifting health care costs to employers that provide health coverage for their retirees, to Medicare beneficiaries themselves, to younger people who buy insurance through the new health insurance exchanges, and to states. In fact, the Kaiser Family Foundation found that raising the eligibility age to 67 would cause an estimated net increase of $5.6 billion in out-of-pocket health insurance costs for beneficiaries. Seniors in Medicare Part B would also face a 3 percent premium increase since younger and healthier enrollees would be routed out of Medicare and into private insurance.