Henry Aaron — the esteemed health care economist and founder of the “premium support” concept that Rep. Paul Ryan (R-WI) is now promoting — is rightfully frustrated with the Budget Committee Chairman for hijacking the term to sell his proposal to voucherize the Medicare program in the GOP budget. In fact, when I first heard Ryan describe his Medicare reform as “premium support” on Fox News Sunday, I assumed that he would be giving seniors not a pre-determined amount of dollars to purchase coverage (as his Roadmap implied), but one that was derived from the bids submitted by private insurers in the Medicare exchange. As Aaaron explains, it’s a technical distinction that makes all the difference:
The defining attribute of the plans that Reischauer and I christened “premium support” was that the amount of support was to be indexed to average health care costs, not, as in voucher plans, to a price index or per person income. If savings were to result from the exercise of consumer choice and market discipline, that would be well and good, we argued. But savings should not come from erosion of the adequacy of support resulting from linking the payment to a slowly growing index. This difference is crucial. Voucher plans are virtually guaranteed to become increasingly inadequate; premium support plans will not.
Ryan’s version of “premium support,” however, is almost identical to a voucher in all but the most mechanical of ways — he would send the money to the insurer rather than the beneficiary — and would provide seniors with a predetermined amount to purchase private coverage: $8,000 in 2022. Thus, if premiums suddenly increase, seniors would have to pay the difference between the rise in premiums and the $8,000 government contribution, making coverage unaffordable. The Congressional Budget Office (CBO) explains that because per person health care spending will exceed the annual growth of the voucher, “the share of health care expenses that a typical elderly beneficiary would have to pay out of pocket would go up in 2030—from 25-30 percent under current law, to 68 percent under the Ryan plan.”
Aaron goes on to say that Ryan’s plan also does not include any of the safeguards to protect seniors from the abuses of the insurance companies and minimize risk selection (a process by which insurers cherry pick the healthiest enrolleess):
Specifically, we suggested three safeguards: 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 effect change in the way health care is delivered.
And of Ryan’s plan he says this: “Finally, there is something distinctly odd when the same people who are working hard to repeal health insurance exchanges for the non-elderly, non-disabled population simultaneously call for setting up such exchanges for the elderly and disabled,” he writes. “If there are populations for whom exchanges have the leastchance of success, it is for the elderly and disabled, where the stakes in risk selection are highest.”