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.

Last month, Newt Gingrich and Mitt Romney both enthusiastically endorsed Sen. Ron Wyden’s (D-OR) and Rep. Paul Ryan’s (R-WI) Medicare premium support plan — a wonky middle-ground between Ryan’s goal of complete Medicare privatization and the Democrats’ reliance on the growing market power of traditional Medicare to drive innovation in the health care system. Under the proposal, seniors would receive a voucher to purchase insurance from an exchange of private plans or Medicare.

During a town hall event in Iowa yesterday, surging GOP presidential candidate Rick Santorum threw his support behind Wyden/Ryan plan, but bemoaned its key compromise — the provision to preserve traditional Medicare:

SANTORUM: One of the things I liked about the Ryan/Wyden plan and why I’ve endorsed it — even though I have a problem with the public option part that Ron Wyden has insisted on, it is a plan that says innovation with insurance companies and consumers drive down costs, instead of having this government-run Medicare system. [...] You have Medicare driving the entire health care system in this country and it’s crushing it.

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. Medicare’s smaller administrative spending and its ability to use its sheer size and clout to bargain for cheaper services explain this advantage. In fact, “if Medicare costs had risen as fast as private insurance premiums, it would cost around 40 percent more than it does. If private insurers had done as well as Medicare at controlling costs, insurance would be a lot cheaper.”

Scott Keyes contributed to this report from Iowa.

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

Last week Sen. Ron Wyden (D-OR) and Rep. Paul Ryan (R-WI) released the latest proposal to restructure Medicare by providing “premium support” or vouchers to beneficiaries. The plan, as we’ve noted, is problematic. But it also begs the question: can any design of premium support work?

The answer is: probably not.

No version of premium support can achieve real savings without adverse consequences for beneficiaries. Some versions (like Rep. Paul Ryan’s budget) would impose an arbitrary cap on the amount of the voucher, significantly shifting costs to beneficiaries—regardless of their choice of plan. Other versions would make many of those who wish to remain in traditional Medicare pay sharply higher premiums. For these beneficiaries, the choice of traditional Medicare would be a false one in reality.

What’s more, no version of premium support can fully prevent private health insurance plans from attracting healthier beneficiaries, driving up premiums for those who remain in traditional Medicare. And finally, no version of premium support can create a level playing field between private plans and traditional Medicare. As a result of these two factors, more and more beneficiaries would gradually shift to private plans over time.

These risks are too great. Medicare coverage costs less than comparable private coverage, and Medicare is more successful at containing costs per enrollee than private plans. While diluting traditional Medicare would sacrifice these advantages, premium support would provide little benefit in savings because the Affordable Care Act already created a mechanism to limit the growth in Medicare costs.

Find out more about the flaws that are inherent in Medicare premium support here.

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.

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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.”