MOUNT PLEASANT, Wisconsin — At a town hall meeting last Friday, Rep. Paul Ryan (R-WI) was confronted by a constituent over his endorsement of “premium support,” a plan that would give future retirees a voucher with which to purchase coverage from private insurers or traditional Medicare. When asked whether he would alter the plan in light of experts “backing away” from it, Ryan claimed that prominent scholars – including Henry Aaron – still supported the general framework of his proposal:

CONSTITUENT: The two men that were your co-creators of your privatization of Medicare plan, Robert Reischauer and Henry Aaron, were on the hill last week. I think they spoke to the House Ways and Means Committee. [...] What’s interesting though, Brennan was on and they’re backing away from your plan, privatization of Medicare, basically because they’re saying it’s going to cost more and give us fewer services than the traditional plan. [...] Are you going to change your plan or how do you stand on that?

RYAN: Hank [sic] Aaron is an economist at Brookings Institute who has been in favor of a different version of what we call “premium support.” [...] Henry Aaron doesn’t agree with the way we’re doing it, but these other Democrats that have been working on the Medicare law for literally a couple of decades, would come to agreement on the best way to save and strengthen Medicare.

Watch it:

Ryan claims that his differences with Aaron are only in the implementation of the policy. In fact, Aaron has said that he no longer believes “premium support” is good policy at all. In testimony before the House Ways and Means Committee on April 27, Aaron conceded that there is no strong evidence the plan would lower the growth of health care costs; in fact, he claimed, private “Medicare Advantage plans are more expensive than is traditional Medicare.” Last year, he also said that “gains from being able to choose among competing insurance plans have been exaggerated.” In an email to ThinkProgress, Aaron confirmed that he has totally backed off the plan.

Instead, Aaron now believes that the Affordable Care Act can do a better job reducing costs and protecting beneficiaries. As he told the Ways and Means Committee, “The passage of the Affordable Care Act means we have put in place a key element of the premium support idea for the rest of the population, namely health insurance exchanges.” Aaron noted that those exchanges are similar to what advocates of “premium support” want to see for Medicare, except these do not put “the burden of cost control on beneficiaries.”

ThinkProgress intern Zachary Bernstein contributed to this post.

Our guest blogger is Topher Spiro, the Managing Director of Health Policy at the Center for American Progress.

Earlier this week the Center for American Progress released an analysis of the Republican budget’s Medicare plan, which would provide vouchers to beneficiaries to purchase either a private health insurance plan or the traditional Medicare plan. We pointed out that new beneficiaries could end up paying as much as $1,200 more per year by 2030 and $5,900 more per year by 2050. Here’s a detailed explanation of where those numbers come from.

The nonpartisan Congressional Budget Office analyzed the Republican budget and estimated its effect on average Medicare spending per beneficiary. Under current law, or CBO’s “baseline scenario,” CBO projects that average spending will rise from $5,500 today to $8,600 in 2030 and to $17,000 in 2050. (CBO converted all dollar figures to 2011 dollars to remove the effects of inflation and ensure appropriate comparisons over time.) These numbers reflect the projected trend in health care costs over time.

But the Republican budget would limit the growth in Medicare spending per beneficiary to growth in the economy plus 0.5 percentage points. That growth rate is much slower than the projected growth rate under current law. As a result, under the Republican budget, CBO projects that average spending would rise to only $7,400 in 2030 and to only $11,100 in 2050. Since the Republican budget would convert Medicare spending into vouchers, these dollar amounts would be the amounts of the vouchers, on average.

In other words, CBO projects that government spending per beneficiary would be $1,200 lower in 2030 (the difference between $8,600 under current law and $7,400 under the Republican budget) and $5,900 lower in 2050 (the difference between $17,000 under current law and $11,100 under the Republican budget).

The key question is: where would these cuts in government spending per beneficiary come from?

For all its self-congratulation for specificity, the Republican budget never specifies how its cap on Medicare spending would be enforced. Under current law, the Affordable Care Act limits growth in Medicare spending to growth in the economy plus 1 percentage point. That cap is enforced by a specific mechanism—an independent expert panel—that creates a strong incentive for Congress to act. But Republicans have disavowed any such mechanism.

And in the absence of any other enforcement mechanism, it’s likely that the cap would be enforced by limiting the amount of vouchers provided to beneficiaries. After all, we know that capping the vouchers is the clear policy goal of Republicans—we need look no further than the budget they proposed last year. What’s more, converting all Medicare spending into vouchers means that it would be difficult to limit Medicare spending by any other means.

The vouchers, therefore, would likely be capped at CBO’s projected spending per beneficiary under the Republican budget: $7,400 in 2030 and $11,100 in 2050. And since these amounts would be much lower than actual costs, beneficiaries would be left to pay the difference.

Of course, Republicans would argue that competition under premium support would lower actual costs below current law levels. But there’s scant evidence that competition alone would lower health care costs substantially. Why? Simply increasing competition among insurers would have little effect without addressing underlying health care costs and competition among health care providers. And even if competition did lower costs, it would only lower the level of costs—not the growth in costs over time.

The upshot is that it’s highly unlikely that competition would come anywhere close to lowering actual costs to the amount of the vouchers. And if competition doesn’t end up lowering costs at all, beneficiaries would be on the hook for $1,200 by 2030 and $5,900 by 2050.

House Budget Chairman Paul Ryan (R-WI) has released a new version of his ‘Path To Prosperity’ budget that makes significant concessions from Ryan’s original plan to privatize the Medicare program, but would still take us down a fairly bumpy road that could throw many seniors out of the car altogether.

Like last year’s Ryan/Wyden reform plan, beginning in 2023, the guaranteed Medicare benefit would be transformed into a government-financed “premium support” system. Seniors currently under the age of 55 could use their government contribution to purchase insurance from an exchange of private plans or — unlike Ryan’s original budget — traditional fee-for-service Medicare. That annual government contribution will no longer be indexed to an arbitrary indicator of inflation plus 1 percent, but would increase with health care costs and rely on market competition to control health care spending. Individuals who choose a plan that costs more than the benchmark would pay the difference, while those who enroll in a lower-cost plan would receive a rebate. Lower-income seniors would also be eligible for additional assistance.

Finally, the budget adopts President Obama’s a per capita cost cap of GDP growth plus 0.5 percent (while repealing the ACA’s Independent Payment Advisory Board), which would act as a “fallback to assure the federal government budgetary savings” and encourage providers to adopt greater efficiences. But since it’s unclear how this cap would be enforced, it’s likely that the cap would limit the government contribution provided to beneficiaries. Since the proposed growth rate is much slower than the projected growth in health care costs, CBO estimates that new beneficiaries could pay up to $1,200 more by 2030 and more than $5,900 more by 2050.

But that’s not the only problem with Ryan’s plan:

1. Ryan breaks up the large market clout of Medicare and pushes seniors into less efficient private insurers. As Rick Foster, Medicare’s chief actuary, admitted during a recent House Budget Committee hearing, since traditional Medicare is far better at advancing delivery system reforms, securing lower reimbursement rates with health care providers, and operating under minimal administrative overhead, transferring Medicare beneficiaries from free-for-service Medicare into the private health market would not contain overall health care spending. It would only shift costs.

2. Seniors who enroll in traditional Medicare will likely pay more for their benefits. That’s because under Ryan’s budget, private plans will be able to cherry-pick the healthiest beneficiaries from traditional Medicare and leave sicker applicants to the government. The budget states that enrollees would be “guaranteed a plan that is at least the value of the traditional fee-for-service Medicare option,” but private insurers could still attract a healthier population by simply ratcheting down services that sicker beneficiaries rely on (like chemotherapy) and building up coverage for healthier applicants (like preventive services). Should they succeed, traditional Medicare costs will skyrocket, forcing even more seniors out of the government program. Seniors who are priced out of traditional coverage over time would enroll in private plans and receive care through more restricted provider networks relative to what they currently enjoy (where nearly all hospitals, doctors, nursing homes participate). Ryan pledges that “CMS would also conduct an annual risk review audit of all insurance plans participating in the Medicare Exchange,” but as the experience with Medicare Advantage demonstrates, existing tools are still insufficient to address cherry picking.

3. The “premium support” credits won’t keep up with health care costs. Fortunately, the vouchers seniors will receive are no longer indexed to inflation. They instead rely on actual average bids in any given geographic area and would do a better job of keeping up with health care costs every year than the original Ryan proposal. But seniors in high cost Medicare areas could still experience a cost-shift and would be responsible for the difference between the amount of the premium credit and the actual cost of the policy.

So there, in a nutshell, is the problem — at least from a policy perspective. Despite its concessions, the new budget moves the health care system closer to the Ryan ideal, in which future Congresses would be able to reduce federal costs by eating away at the premium credit seniors receive. The plan does little to address the root of the cost problem — changing how we pay doctors and hospitals by moving away from fee-for-service payments — and instead limits the government’s commitment by shifting more costs to beneficiaries.

Rep. Chris Van Hollen (D-MD) launched a pre-emptive strike against the GOP’s forthcoming budget during a committee hearing Tuesday morning, arguing that the Republicans’ plan to transform Medicare through “premium support” would increase costs for seniors. House Budget Committee Chairman Paul Ryan (R-WI) is expected to release the party’s budget sometime next month, which will call for lowering federal health spending by providing seniors with a “premium support” voucher to purchase insurance from an exchange of private health care plans.

During a question and answer session before the house committee, Rick Foster, the program’s chief actuary, confirmed that traditional Medicare is more efficient than private insurers and went on to say that shifting beneficiaries from fee-for-service Medicare into private plans does not lower overall health care costs. “If you’re simply transferring the Medicare beneficiary from the Medicare system into the private health market and the growth in cost in the private health care market is the same or higher than Medicare, they’re not going to contain any less, are they?” Van Hollen asked. “Other things being equal that’s correct,” Foster responded.

Foster also agreed that the GOP’s “premium support” plans are different than the health care policies members of Congress enjoy through the Federal Employees Health Benefits Plan (FEHBP), where each member’s “premium support credit” keeps up with actual health care costs:

VAN HOLLEN: The Federal Employee Health Benefits System (FEHBP) — which every member of Congress is on — is targeted to the market price. But members of Congress are guaranteed a certain share of their premiums will be paid by the federal government, I think that’s right.

FOSTER: That’s correct.

VAN HOLLEN: Ok, and there is a big difference between that — in terms of economic security — between that and a system where the amount of the voucher or premium support (whatever you want to call it) is not linked to the market price, but could be linked to an indicee that does not rise as the same rate cost-wise as the market. Right?

FOSTER: Yes. [...]

VAN HOLLEN: In your testimony, you point out that in those cases where your support — the amount of your voucher doesn’t keep pace with the market cost of health care, you may have to choose to either pay a lot more out-of-pocket or not get a health care plan that covers all your needs. Is that correct?

FOSTER: That’s certainly a risk and it’s a pretty important risk.

Watch a compilation of the exchange:

This year’s House budget will likely be similar to Ryan’s proposal from last year, which passed in a vote of 235-193 with no Democrats in support, but may include some changes to the Medicare provisions, akin to the plan Ryan unveiled with Senate Democrat Ron Wyden (D-OR). The proposal may maintain traditional Medicare as an option and grow the premium support credit with the actual cost of the policies. Ryan’s 2011 budget grew the premium support substantially slower than actual health care costs, shifting health care costs to beneficiaries.

If President Obama’s newly-proposed budget were to be enacted, its long-run projections show U.S. debt stabilizing as a percentage of GDP until approximately 2030, after which it begins to rise again indefinitely. Last Thursday, House Budget Committee Chairman Paul Ryan (R-WI) decided to take Treasury Secretary Tim Geithner to task over those numbers:

RYAN: Leaders are supposed to fix problems… Our government is making promises to Americans that it has no way of accounting for them. And so you’re saying, “Yeah, we’re stabilizing it but we’re not fixing it in the long run.” That means we’re just gonna keep lying to people. We’re going to keep all the empty promises going.

The most important thing to remember about the debt increase from 2030 onward is that it’s driven almost entirely by health care costs:

Some of this is the retirement of the baby boomers, and the resulting increase in retirees as a share of the population. Though Social Security is also effected by this, and its per year expenditures stabilize after a few decades at 6 percent of GDP. Some of this is also technological advancement, which just naturally makes health care more expensive as it’s able to do more things. Every advanced country’s health care is rising as a percent of GDP, but none are as high or rising nearly as quickly as the U.S. The fundamental problem is the cost of health care in America is rising at a much faster rate than overall economic output. And that’s the costs for everyone: Individuals, private insurers, and government alike. As a result, the amount of money the government is scheduled to spend each year on health care, the lion’s share of which goes to Medicare, is predicted to grow indefinitely as a percentage of GDP. Simply put, the thing Medicare buys is becoming ever more expensive, so Medicare’s budget is becoming ever larger.

There are two ways to solve this. One, the government can simply buy less health care over time — and by extension leave every American who has relied on that support to find some other way to make up the difference. That’s what Ryan and the Republicans did in their 2011 budget which passed the House last April. Ryan’s budget would’ve transformed Medicare into an exchange providing private insurance plans, with premium support to help seniors buy those plans. Ryan and the Republicans would then have slashed that support so drastically that by 2030 the typical 65-year-old would be paying 68 percent of their health care costs, according to the CBO. Absent those changes to Medicare, that amount would not rise above 30 percent. Ryan’s budget also called for severe cuts to Medicaid and discretionary spending, two-thirds of which would’ve fallen on the shoulders of America’s poorest and most vulnerable citizens. Read more

In what could only be described as a major retreat from Rep. Paul Ryan’s (R-WI) original Medicare premium support proposal, Sens. Tom Coburn (R-OK) and Richard Burr (R-NC) have unveiled a new Medicare reform plan that expands the involvement of private insurers in the Medicare program, but maintains traditional Medicare. Beginning in 2016, under Coburn/Burr, the Medicare benefit would be transformed into a “premium support” subsidy and seniors would have the option of purchasing insurance from traditional fee-for-service Medicare or an exchange of private policies. Unlike Ryan, the annual contribution is not indexed to an arbitrary indicator. Rather, the “premium support” would increase with health care costs and rely on market competition to control health care spending. From the plan:

[W]e would require traditional Medicare Fee-For-Service (FFS) and private plans to compete with each other. In 2016, the first year of bidding, FFS Medicare and Medicare private plans would participate in competitive bidding at a regional level to offer a package of health care benefits actuarially equivalent to the previous year’s Medicare benefit. While there would not be a specific, required benefit package required for new Medicare plans that would be spelled out in detail, all plans would be required to cover basic hospital, surgical, physician, and emergency care. [...]

[S]eniors would receive their Medicare benefit as a defined contribution. Key to making this proposal work is to give seniors in a region a fixed amount from the government for which to buy a Medicare plan. The government administered plan and private plans would both bid to provide the Medicare benefit for a region. The Federal Government’s contribution for the first year’s bid would be the Government’s share of spending (in Parts A and B) for the prior year. The Federal contribution for each senior would be tied to the weighted average bid. The defined governmental contribution would be adjusted for income levels, so the wealthiest seniors would pay more and the lower-income seniors would pay less. However, the contribution would not increase if a given senior simply picked a more expensive plan – the amount of the governmental contribution would be fixed, regardless of what plan a senior chose. The dollar amount of the defined contribution would increase each year based on the competitive bidding system that accounts for the prior year’s expenses and enrollment.

The proposal is very similar to the bipartisan framework outlined by Ryan and Sen. Ron Wyden (D-OR) last year and adds little to the Medicare reform debate. Without attracting another Democratic co-sponsor, the two Republicans seemingly walked back Ryan’s original Medicare proposal — by maintaining the existing Medicare program and giving up on the ambitious indexing of inflation plus 1 percent — and introduced a plan that could potentially serve as a new foundation for future reform and momentum.

But the policy is still shaky at best. Like Ryan and Wyden before them, Coburn and Burr are willing to set the nation on an untested path of private competition that breaks up the large market clout of Medicare and pushes seniors into less efficient private insurers. Under Coburn/Burr’s loose regulations, private plans will be able to cherry-pick the healthiest beneficiaries and leave sicker applicants to the government. In fact, without having to offer a defined package of benefits, private insurers could attract a healthier population by simply ratcheting down services that sicker beneficiaries rely on (like chemotherapy) and building up coverage for healthier applicants (like preventive services). Should they succeed, traditional Medicare costs will skyrocket, forcing even more seniors out of the government program. Seniors who are priced out of traditional coverage over time would enroll in private plans and receive care through more restricted provider networks relative to what they currently enjoy (where nearly all hospitals, doctors, nursing homes participate). Although the Coburn/Burr incorporates “a risk-adjustment process,” existing mechanisms are still “less than fully effective in adjusting payments downward based on how much healthier these enrollees are” and private plans participating in Medicare Advantage continue to, on average, enroll healthier beneficiaries.

The vouchers seniors will receive are no longer indexed by inflation. They instead rely on actual average bids in any given geographic area and would do a better job of keeping up with health care costs every year than the original Ryan proposal. But seniors in high cost Medicare areas could still experience a cost-shift and would be responsible for the difference between the amount of the premium credit and the actual cost of the policy.

So there, in a nutshell, is the problem — at least from a policy perspective. Despite its concessions, Coburn/Burr moves the health care system closer to the Ryan ideal, in which future Congresses would be able to reduce federal costs by eating away at the premium credit seniors receive. The plan does little to address the root of the cost problem — changing how we pay doctors and hospitals by moving away from fee-for-service payments — and instead limits the government’s commitment by shifting more costs to beneficiaries.

Sen. Tom Coburn (R-OK) inadvertently referred to prominent Republicans like Paul Ryan, Mitt Romney, and Eric Cantor as liars during an interview with Oklahoma’s News on 6 Thusday night. “Any politicians that stands up and says, ‘We’re not going to touch your Medicare’ is a liar,” Coburn said, apparently forgetting that the GOP has used the talking point as a center piece in their campaign to sell Medicare premium support to the public. Watch Coburn’s remarks:

The GOP has repeatedly argued that it would preserve benefits for existing seniors:

– PAUL RYAN: “If you take a look at our reforms…[they] don’t change any Medicare benefits for a person 55 or above.” [Fox News, 1/29/2012]

– MITT ROMNEY: “We will never go after Medicare or Social Security. We will protect those programs.” [TPM, 1/31/2012]

– ERIC CANTOR: “To today’s seniors, those 55 and older, we’re not going to touch those programs. For the rest of us, we realize these programs won’t be around in their current state and we have to change the nature of those programs for the rest of us.” [CNBC, 4/13/2011]

It’s very very likely that beneficiaries 55 and older would see changes in their Medicare benefits under Ryan’s plan. In 2022, newly-eligible seniors would have to enroll in a private plan, but existing beneficiaries (those who are over 55 today) would also have the option of leaving traditional Medicare. That opens up the possibilities of private plans trying to lure away the healthiest beneficiaries (as is currently the case in Medicare Advantage) and of health care providers abandoning traditional Medicare patients for the higher reimbursement rates of private insurers. For chronically ill seniors who are more likely to remain in fee-for-service Medicare this means two things: higher costs (as the healthier beneficiaries exit the risk pool) and fewer doctors.

MSNBC’s Joe Scarborough tore into Mitt Romney this morning for falsely claiming that President Obama is the only president “in history that’s cut Medicare by $500 billion” and scaring senior citizens about the future of the program. “It’s pathetic!” Scarborough exclaimed, before pointing out that Romney himself supports large reductions to the program and has endorsed Paul Ryan’s Medicare reforms:

SCARBOROUGH: That is the most shameful demagoguery that I have heard on the campaign trail yet this year. To tell senior citizens that the program that is going to bankrupt America unless we figure out a way to bend the cost curve, is going to be protected forever and can you believe that Barack Obama cut $500 billion from it? It’s just unspeakable…it is unspeakable, because this country is going bankrupt and Mitt Romney is trying to scare senior citizens — you know what? It’s what we called Mediscare in ’95 and ’96. It was pathetic when Bill Clinton did it it’s pathetic when Mitt Romney does it, it’s pathetic when he does it because of Medicare Advantage. Pathetic.

Watch it:

“And Mitt Romney’s on record as supporting Paul Ryan’s plan, which as far as I remember it, actually takes huge, makes huge savings/cuts to Medicare,” New York Magazine’s John Heilemann added. Indeed, the Ryan plan fundamentally transforms Medicare’s structure into a guaranteed contribution program, significantly reduces its growth rate, and actually maintains many of the savings included in the Affordable Care Act. Romney himself has introduced very similar reductions as part of his own Medicare proposal.

During an appearance on Fox News Sunday, Rep. Paul Ryan (R-WI) pledged to reintroduce his plan to privatize Medicare as part of the GOP’s budget plan in March. “I would simply say, there’s an emerging bipartisan consensus that we’re on the right track,” Ryan told host Chris Wallace. “And the point is, we should be offering solutions to our problems in our country. We shouldn’t just be demagoguing other people and offering no solution.”

Ryan would do well to follow his own advise, as the indignant House Budget Committee chairman grossly misrepresented the Affordable Care Act and the details of his own Medicare premium support solution. Below is a brief fact check:

CLAIM — MEDICARE WILL GO BANKRUPT: “The Congressional Budget Office also says Medicare is going bankrupt in 2021. The trustees at Medicare say that there’s $37 trillion unfunded liability.”

FACT: The CBO says that one part of Medicare — Part A or hospital insurance — will become “insolvent,” not bankrupt. Dedicated revenues will not be sufficient to pay all of its bills and the hospital fund will meet about 90 percent of its commitments, rather than the full 100 percent. In the succeeding years that shortfall will slowly widen and then contract, so that in 2085, Medicare could pay out 88 percent of its obligations, the program’s trustees conclude. The savings in the ACA — lowering annual payment updates to providers — has actually extended the life of the trust fund by nine years.

CLAIM — NOTHING CHANGES FOR CURRENT SENIORS: “If you take a look at our reforms, which don’t change any Medicare benefits for a person 55 or above, and says for people 54 and below, when they’ll retire, they’ll have a list of guaranteed coverage options over by Medicare just like we do it in Congress and federal employees have, and we’re not going to subsidize the wealthy as much as everybody else.”

FACT: It’s likely that beneficiaries 55 and older would see changes in their Medicare benefits. In 2022, newly-eligible seniors would have to enroll in a private plan, but existing beneficiaries (those who are over 55 today) would also have the option of leaving traditional Medicare. That opens up the possibilities of private plans trying to lure away the healthiest beneficiaries (as is currently the case in Medicare Advantage) and of health care providers abandoning traditional Medicare patients for the higher reimbursement rates of private insurers. For chronically ill seniors who are more likely to remain in fee-for-service Medicare this means two things: higher costs (as the healthier beneficiaries exit the risk pool) and fewer doctors. Ryan’s proposal also does not resemble the “coverage options” of federal employees, because his “premium support” payments do not keep up with health care costs. The FEHBP’s do.

CLAIM — ACA WILL RATION CARE: “Put that in comparison to the president’s health care law. This year, he appoints 15 unelected, unaccountable bureaucrats to a board called the IPAD, Independent Payment Advisory Board, and their job is to put price controls and therefore rationing on Medicare for current seniors. So, the president’s law takes half a trillion dollars out of Medicare to spend on Obamacare and now he’s putting this new rationing board in place, which will lead to denied care to current seniors.”

FACT: The 15 members of the IPAB are appointed by the President, but confirmed by the Senate. The group is tasked with making binding recommendations to reduce expenditures in the Medicare system, unless Congress acts to alter the proposal or discontinue automatic implementation. Significantly, their proposal to reduce spending cannot “include any recommendation to ration health care, raise revenues or Medicare beneficiary premiums…increase Medicare beneficiary cost- sharing (including deductibles, coinsurance, and co- payments), or otherwise restrict benefits or modify eligibility criteria” (Section 3403 (page 409) of the Affordable Care Act stipulates.)