Despite the GOP’s characterization of the Affordable Care Act as a one-size-fits-all federal mandate, the actual provisions of the law and the regulations promulgated by federal agencies reveal a state-based reform that allows governors and state legislators significant leeway and input in its implementation. For instance, today, the federal government issued guidance about oh the law’s essential health benefits: the standard benefits insurers will have to offer beginning in 2014.

Regulators have long sought to balance affordability with comprehensiveness and in today’s “pre-rule bulletin,” the federal government has chosen to leave that task up to the states. Instead of establishing a single national standard, “states will be able to design benchmark plans based on one of four choices: The benefits offered in one of the three largest federal employee plans (by enrollment), one of the three largest plans offered to their state employees, one of the three largest small-business plans in the state or the plan offered by the largest HMO in the state,” Kaiser Health News explains:

Those benefits, which must be offered by insurers in most policies sold to individuals and small businesses, are one of the key flash points in the federal health law. Patient advocates have called for a broad national standard covering a wide range of treatments, while business groups say affordability must be a top consideration, even if it means a more limited package.

Because state employee plans and policies sold in the states can vary widely, the move means there will likely not be one national standard benefit package, but rather “benchmark” plans in each state. That gives states the flexibility they had called for, but also means coverage will vary.

Indeed, the package will vary depending on the coverage levels in each state, though the differences may not be too great. The law requires that all insurers offer at least 10 general categories of services like hospitalization, maternity care, mental health and substance abuse treatment, and prescription drugs, and states will, as HHS Secretary Kathleen Sebelius put it, “tailor their package to the needs of their own residents.”

In an interview with ThinkProgress, Sen. Ron Wyden (D-OR) addressed criticism of the Medicare premium support plan he introduced yesterday with Rep. Paul Ryan (R-WI). Before tackling the policy specifics, Wyden addressed the political reaction to the plan and played down Republican support for his proposal. “I want folks all across the political spectrum…to be supportive of these kinds of principles,” he said, in response to a question about Newt Gingrich’s and Mitt Romney’s endorsements of Wyden/Ryan. “I don’t put too much stock into someone saying on the campaign trail that they’re for this, or they’re for that.” “I’m looking for people who will talk in specific terms about the fundamental issues — will they be for traditional Medicare being there for all time?,” he offered.

Under the Wyden/Ryan proposal, beginning in 2022, seniors will receive a pre-determined premium support voucher to purchase benefits through an exchange of private plans or the existing fee-for-service program. The government subsidy would be determined by the “second-least expensive approved plan or fee-for-service Medicare, whichever is least expensive” and “rise or fall along with the actual cost of the policies — creating more protection for seniors” than past premium support plans.

Some health analysts, including this blog, have raised concerns that shifting beneficiaries from Medicare into private health insurance plans would undermine Medicare’s “guaranteed equitable access to affordable health care” and, in some geographic areas, offer premium support subsidies that don’t fully cover the cost of traditional Medicare. The program would also place seniors in the untested — and at times untrustworthy — hands of private insurers, who would have an incentive to design policies that attract only the healthiest applicants. Wyden/Ryan does offer tools to help prevent cherry-picking, but the plan is somewhat vague and relies on existing risk adjustment mechanisms that may not eliminate adverse selection against traditional Medicare.

What follows is an abridged and edited version of Wyden’s response to this criticism:

MOVING AWAY FROM THE ADVANTAGES OF MEDICARE

VOLSKY: Some health analysts have asked, why would you take Medicare that’s a bulk purchaser, that can drive innovation that, with the Affordable Care Act is going to do delivery reforms that are hopefully going to be taken systemwide, why would you take take that, move more people out of it, make it smaller over time and rely on this new competitive structure that for the most part is an untested system?

WYDEN: I’m for using Medicare marketplace leverage at every possible opportunity. For example, I’ve been one of the strongest proponents of lifting restrictions so that Medicare can bargain to hold down the costs of medicine. Of course you ought to use the marketing power of Medicare. What we’re simply saying is that anyone who wants to be in traditional Medicare today, can do it, can be in traditional Medicare. I simply think it makes sense to give senior citizens the choice to do something else, particularly if you have the consumer protections I envision.

VOLSKY: But if the program becomes smaller over time, as it inevitably will, when people go into the private Medicare exchange…

WYDEN: I don’t believe that you can foreordain the decisions. I think people are going to look…

VOLSKY: Do you envision that most people are going to remain in traditional Medicare?

WYDEN: I think traditional Medicare certainly has a story to tell right now. I think traditional Medicare with [low] per-patient growth, right now, going to talk about that, that’s as it should be.

Read more

Alice Rivlin — the former OMB director and co-author of the Domenici/Rivlin “premium support” proposal — admitted today that policy makers would face challenges in preventing private insurers from cherry-picking healthier (and more profitable patients) from traditional Medicare and increasing costs in the fee-for-service system within the envisioned “premium support” structure. While existing proposals rely on risk adjustment mechanisms to prevent the practice, Rivlin conceded at a Brookings event that the tools currently available to regulators are, indeed, far from perfect. Watch it:

Private plans participating in Medicare Advantage continue to, on average, enroll healthier beneficiaries and health insurers are already “trying to withhold data necessary to assure that risk adjustment under the Affordable Care Act.” They’re also fighting to undercut regulations that require all insurers to offer a basic set of essential benefits “by proposing that the essential health benefits package be defined in terms of a dollar value rather than a specific set of covered services.”

Should lawmakers translate premium support into actual legislation, it’s easy to imagine that insurers — who are interested in maximizing profits — will work even harder to water down the government’s ability to prevent the industry from enrolling more profitable beneficiaries.

A group of progressive health care policy analysts are pushing back against the Wyden/Ryan Medicare reform plan this morning during an event at the Brookings Institute. The analysts — Urban Institue’s Judy Feder, the Center for Budget and Policy Priorities’ Paul Van de Water, and Brookings’ Henry Aaron — will argue, in remarks obtained by ThinkProgress, that shifting beneficiaries from Medicare to a series of private health insurance plans would undermine Medicare’s “guaranteed equitable access to affordable health care” and place seniors care in the untested — and at times untrustworthy — hands of private insurers.

Relative to private insurance, Medicare’s performance “is quite impressive,” even superior, they will argue:

– RISK POOLING: Medicare does a terrific job at what any successful insurance plan must do. It pools risks without regard to people’s health status. Private insurers, in contrast, make money…by serving the healthy and avoiding the sick.

– MARKET POWER: Tens of millions of purchasers in a single pool also give Medicare the edge in dealing with providers, who are increasingly concentrated and therefore effective in driving up payments where they can. Medicare pays hospitals about 30 percent less than private insurers do; it pays physicians about 20 percent less. Whether because insurers lack the clout (or, in some cases, the market pressure), private insurers have been markedly ineffective in resisting provider pressure to increase payment rates.

– LOWER PREMIUMS: CBO finds that Medicare premiums, currently estimated to be 11 percent lower than private insurance premiums for the same benefit package, will be about 30 percent lower by the end of the next decade.

– LOWER COST GROWTH: But when it comes to what health care cost per person, Medicare’s growth rate is remarkably low. As a result of payment changes in the Affordable Care Act, Medicare per capita spending is projected to grow at an average rate of about 3 percent per year—as much as a point below per capita GDP growth.

While Feder, Van de Water and Aaron share Wyden/Ryan’s goal of reducing health care spending, they argue that there is little evidence to suggest that competition between private insurers could reduce the cost growth and that the existing premium support proposals “lack the regulatory teeth necessary to make premium support even worth considering.”

“The average Medicare enrollee today may choose among an average of 24 plans, in addition to traditional Medicare, including 10 health maintenance organizations.” And while some private plans are better at controlling costs than others, they can and do cherry pick healthier enrollees by varying the scope of benefits offered and still “fall short in the adequacy of its network, waiting times, customer services, and other factors.” Meanwhile, government is still unable to level the playing field or enforce and maintain fair competition. The “current risk-adjustment technology” is inadequate to prevent adverse selection, particularly since insurers — always concise of maintaining profit margins — “are trying to withhold data necessary to assure that risk adjustment under the Affordable Care Act.” They’re also fighting to undercut regulations that require all insurers to offer a basic set of essential benefits “by proposing that the essential health benefits package be defined in terms of a dollar value rather than a specific set of covered services.”

Finally, as Aaron will observe, given that per-person spending under Medicare “is three times that on those who will be served under the ACA, and variation in spending is correspondingly larger,” the government’s task of inserting greater competition into Medicare “would be vastly harder,” while “The profit from cream-skimming [for insurers] is that much greater.” And beneficiaries themselves could be at a disadvantage when choosing between competing plans. The Medicare population “contains many people with mental disabilities and early or advanced mental decline…to think that providing ‘clear and easy to understand information’ equips those with mental disabilities or early-state dementia to deal with competing insurers is delusional.”

Newt Gingrich routinely lobbied Congress for initiatives that expanded the government’s role in health care and benefited companies associated with the the Center for Health Transformation, the New York Times reports. Before he decided to run for president and rebranded himself as a free-market pioneer, Gingrich advocated for expansion of Medicare’s prescription drug benefit, renewal of the State Children’s Health Insurance Program (SCHIP), greater government investment in electronic health records and comparative effectiveness research. At the time, “his center was being paid hundreds of thousands of dollars a year by major drug makers and insurers” and “clients with an interest in building a national electronic health records system.”

In May of 2009, as the House and Senate worked on early drafts of the Affordable Care Act, Gingrich, along with his Center, spoke out in favor of the provision in a conference call:

“We believe there should be must-carry; that is, everybody should have health insurance, or if you’re an absolute libertarian, we would allow you to post a bond.”

As Lee Fang has reported, CHT serves approximately 94 health industry corporations and lobby groups, including health insurance (BlueCross BlueShield Association, WellPoint, AHIP, UnitedHealth), health IT (L-3 Enterprise, Microsoft, IBM), and pharmaceutical companies — with each paying up to $200,000 annually.

Incidentally, as Gingrich pushed for increases in government spending — something he now opposes — he enveloped his proposals in small-government conservative rhetoric. For instance, while urging conservative Republicans to approve the 2003 Medicare Modernization Act, an unfunded expansion of Medicare that the Center for Medicare and Medicaid Services (CMS) now project that the program will cost the government $16.1 trillion “through the infinite horizon,” the former House Speaker said: “if you are a fiscal conservative who cares about balancing the federal budget, there may be no more important vote in your career than one in support of this bill.”