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.
During his re-election bid this past November, Sen. Richard Burr (R-NC) said that he 
