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.”

Rep. Paul Ryan (R-WI) and Sen. Ron Wyden (D-OR) will unveil a new Medicare premium support plan during an event at the Bipartisan Policy Center this morning that is a stark departure from the Budet Committee Chairman’s proposal to end the traditional Medicare program that most Republicans voted for.

Under the new bipartisan plan, 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 and saving potentially far less in the budget.” Ryan’s budget grows the government’s contribution substantially slower than actual health care costs, shifting health care costs to beneficiaries. The plan maintains the Affordable Care Act’s cap on spending at Gross Domestic Product growth plus 1 percent and would also “add catastrophic coverage with a cap on out-of-pocket costs.”

The proposal is similar to the Rivlin/Domenici plan and it shares some of its problems. Connecting the premium support credits to the second lowest plan in any given geographic area would shift lest costs to seniors than determining the credits independent of the actual bids (via indexing), but in high cost Medicare areas, the second lowest plan will be cheaper than coverage available through traditional Medicare. Thus, seniors who chose to stay in the fee-for-service could still experience a cost-shift: they would be responsible for the difference between the amount of the premium credit and the actual cost of the policy (conversely, if a “senior chose a plan that cost less than the benchmark, he or she would be given a rebate for the difference”). Lower-income residents would receive additional assistance.

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Mitt Romney insists that he will weaken the Affordable Care Act by allowing states to opt-out of key requirements of the law through the “innovation waiver” provision championed by Sen. Ron Wyden (D-OR). But as Politico’s Jennifer Haberkorn reports this morning, Romney will have a hard time making good on his promise. Wyden’s waiver wasn’t designed to destroy the law — as Romney intends to do — but rather allow states greater flexibility in meeting its goals:

Wyden, who got the waivers into the health care law and has proposed new legislation moving the waiver implementation date up to 2014, tells POLITICO he is happy that people are paying attention to the waivers. They represent an area of common ground, he says, where Republicans and Democrats can support health coverage and cost goals while allowing states to innovate.

But he warns that if Romney uses the waivers to undermine the law — which is the presidential candidate’s goal — it won’t work.

“Anybody who tries to move outside the standards of the bill — which is the coverage and costs and the like — well I’ll certainly fight that. But I think lots of other people will too,” Wyden said.

“I’m going to blow the whistle on that and say that’s not what it was about. You don’t get to come up with a waiver as a back-door way to get out of health care and not do anything.”

To qualify for waivers, states must demonstrate that they have devised an alternative plan that can cover “at least as many citizens with coverage that is at least as comprehensive and affordable as prescribed under federal law.” States that meet those requirements will only be exempt from complying with the individual mandate, the employer penalty for not providing coverage, and the exchange regulations; they will still be required to expand their Medicaid programs, regulate health insurers and meet the law’s numerous other standards.

Unfortunately for Romney, the executive branch does not have the authority to unilaterally opt states out of a law passed by both chambers of Congress, meaning that he will have to look to other means to achieve his goal of taking away coverage from 32 million Americans and increasing the deficit by $230 billion.

The White House has portrayed President Obama’s endorsement of a bipartisan proposal that would allow states to opt out of the individual mandate in 2014 as a matter of “state flexibility” and sees the legislation as an attempt to push back against the GOP’s claims of a “government takeover of health care.” I argued yesterday, that by endorsing the proposal, Obama can also challenge Republican governors who oppose his method of reform to prove that their conservative solutions would go as far in expanding health care coverage and reducing costs.

But Sen. Mary Landrieu (D-LA), who co-sponsored the amendment along with Sens. Ron Wyden (D-OR) and Scott Brown (R-MA), is taking this message a step further — co-opting the GOP’s talking points on reform to argue that the amendment is “the ultimate repeal and replace”:

But Landrieu said that her bill was, in effect, “the ultimate repeal and replace,” leaving it to each state that is unhappy with the design of the federal law “to replace it with whatever each state comes up with.”

“The only string (attached) is to cover people that work,” said Landrieu, who said the fundamental premise of reform is that working people should not have to face bankruptcy to pay their medical bills.

“Does (Gov. Jindal) think that people should work 50, 60, sometimes 70 hours a week and not have access to health care?” asked Landrieu, who said the governor needs to bring his expertise to bear to come up with a plan that fits Louisiana’s needs.

“If the governor doesn’t like the health-care bill, the beauty of this proposal is that you can create your own, but it’s not responsible and not right to just run away from your responsibilities,” said Landrieu, noting that “anybody can balance a budget if you want people to die in the streets and if you want people to stay out of school.” The mark of a skillful governor, she said, would be crafting a balanced budget that still “finds a way to provide health care and provide education.”

It’s highly unlikely that the GOP will go along with the measure, partly because the amendment is now endorsed by Obama and partly because it’s difficult to come up with an alternative that meets the coverage and cost benchmarks of the Affordable Care Act (with the kind of health care initiatives Republicans have been proposing). But forcing Republicans to step away from the rhetoric of reform and lay out the actual consequences of their policies for the uninsured would go a long way towards sorting out the wheat from the chaff.