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.)

Politico’s Jonathan Allen and Manu Raju have an interesting report detailing Democrats’ frustrations over Sen. Ron Wyden’s (D-OR) decision to join hands with Rep. Paul Ryan (R-WI) and offer a bipartisan Medicare premium support plan that, while certainly not as radical as the original GOP blueprint, would likely increase costs for seniors and put the program on the road towards greater privatization.

You can read the full policy analysis of Wyden’s proposal here and here, but Democrats are worried that Wyden is also undermining the politics of Medicare reform by providing Republicans with “bipartisan” cover for their ultimate goal — complete privatization of the Medicare program:

“It neutralizes the weapon,” Sen. John Cornyn, chairman of the National Republican Senatorial Committee, said in an interview. [...]

Asked if there was frustration among Senate Democrats with Wyden over Medicare, Senate Majority Whip Dick Durbin (D-Ill.) told POLITICO: “I’ve heard that sentiment expressed.” But he quickly added that he’s also heard “some say that initiating a bipartisan conversation that will preserve Medicare is worthwhile. So let’s see if the Ryan-Wyden approach meets that test.”

Privately, the criticism is more biting. “Democrats believe in Medicare and, rather than bolster it, Wyden undermined a great issue for us all so he could grab a couple of headlines,” one furious Democratic source said. “Just embarrassing.”

Wyden stresses that his plan preserves traditional fee-for-service Medicare as an option for seniors — and it does, while also shrinking its impact and market power and undermining its effectiveness. What’s even more troubling, however, is that Wyden is cashing in one of the Democrats’ most important chips in this debate: Medicare’s large market power and success in containing health care costs. He is accepting the GOP’s alarmism about Medicare’s future — which isn’t nearly as dire as they suggest — and laying Medicare on the table as a legitimate target for further cuts. That kind of approach not only muddles the Democrats’ political message (we will strengthen this efficient government-sponsored program, while Republicans aim farm it out to private insurers), but also greatly increases the likelihood of greater privatization and coverage erosion in the future.

During an appearance on Fox News Sunday, House Speaker John Beohner (R-OH) confirmed that Republicans won’t be backing away from plans to privatize the Medicare program this year — despite voters’ rejection of the plan — and will attempt to “pursue a bipartisan Medicare proposal in order to deflect Democratic attacks”:

WALLACE: Will the House pass a budget this year, and will it have serious entitlement reform in it again such as last year’s proposal by Paul Ryan for premium supports (ph) as a way to change and reform Medicare?

BOEHNER: Well, that was one option on how we could save Medicare. There are other ideas. Paul Ryan and Ron Wyden, the Democrat senator from Oregon, came up with a bipartisan proposal. The idea here is that we’ve got to make changes to Medicare. Otherwise, it will not be there for seniors who count on it. So we will do a serious budget. But also, remember this: on Tuesday, it will be 1,000 days since the United States Senate passed a budget. One thousand days, and they have yet to pass a budget. How do you deal with the long-term fiscal problems that we have if you refuse to come to an agreement on a budget?

WALLACE: So I want to make it clear, because there had been some thought that maybe because of the hits that you guys took last year, you weren’t going to pass a budget. You are going to pass a budget again this year?

BOEHNER: Of course we are.

Watch it:

House Budget Chairman Paul Ryan (R-WI) echoed Boehner’s sentiment at the House Republican retreat in Baltimore on Friday, telling Reporters, “We’re not backing off on the kinds of reforms that we’ve advocated, but we have to write it.” “We’ve done more to normalize the idea of premium support than anything at all. We’re confident that these are the right policies. There’s an emerging bipartisan consensus that’s occurring on doing premium support reform to Medicare is the best way to save Medicare.”

Only one Democrat in the Senate, Ron Wyden (D-OR), has publicly embraced a watered down version of Ryan’s premium support proposal, but the plan — which would preserve traditional Medicare as an option for seniors and offer premium support credits that would do a better job of keeping up with health care costs — was rejected by Congressional Democrats and the White House. They argued that no version of premium support can achieve real savings without adverse consequences for beneficiaries, noting that the proposal could significantly shift costs to beneficiaries and fail to fully prevent private health insurance plans from attracting healthier beneficiaries and driving up premiums for those who remain in traditional Medicare.

In fact, there is very little evidence to suggest that private plans have or can do a better job of lowering spending. Medicare’s sheer size and bargaining clout have contributed to its greater success in controlling health care costs and the program has introduced market innovations and payment reforms that were later adopted by private industry. The Affordable Care Act will build on this structure by investing in new demonstration projects and payment reforms that will reward providers for delivering care more efficiently and — ultimately — lower the rate of growth in health care spending.

Rick Santorum reiterated his opposition to Medicare during a town hall in South Carolina Thursday morning, saying, “we should not have a government-run health care system on Medicare or anything else, because it completely distorts the market. It’s top down. It’s not the way America works best.” Santorum made the remarks in the context of his support for Sen. Ron Wyden’s (D-OR) and Rep. Paul Ryan’s (R-WI) “premium support” proposal. Watch it:

Santorum is a strong supporter of Ryan’s original Medicare privatization scheme to completely eliminate traditional Medicare as an option for seniors and has promised to accelerate its implementation. Medicare, however, has a better track record of controlling health care costs than private insurers and has introduced market innovations and payment reforms that private plans later adopted.

A study published today in the New England Journal of Medicine finds that a growing number of health insurers are trying to recruit younger and healthier beneficiaries into their Medicare Advantage programs by offering fitness club memberships:

The study found 35.3 percent of new enrollees in a fitness membership benefit plan reported “excellent” or “very good” health, compared with 29.1 percent in the group without the benefit. The number of plans offering the memberships rose to 58 in 2008 from 4 in 2002, the researchers said.

The five largest insurers are looking to expand their roles in offering government-subsidized health plans as the number of Americans covered by them grows under the 2010 U.S. health law. In doing so, the companies may try to “cherry pick” members who are more likely to be healthy using the fitness memberships, said Amal Trivedi, an assistant professor of community health at Brown University in Providence, Rhode Island, and the author of the report released yesterday.

Gym memberships are certainly a good preventive benefit for some beneficiaries, but as Trivedi points out, they also allows insurers to skim the cream off the top and attract the healthiest and most profitable risk pool, leaving older and sicker seniors in traditional Medicare. That is precisely the problem with the GOP’s (and Ron Wyden’s) Medicare premium support proposals. It is very difficult, from a policy standpoint, to counteract private insurers’ market-driven desire to maximize returns (by trying to keep out sick and expensive applicants) with existing risk adjustment mechanisms. They are clearly less than fully effective in preventing cherry picking and any Medicare proposal that does not level the playing field by requiring companies to offer standardized benefits and preventing too much variation is asking for a serious adverse selection problem.