Understanding Rep. Ryan's Plan for Medicare Based on
Premium Support
September poll found 69 percent of senior citizens
- people older than 65 - opposed vouchers for Medicare
By Kaiser Health News Staff
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House Budget Plan: What It Means,
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April 5, 2011 - House Budget
Committee Chairman Paul Ryan, R-Wis., left many details to Congress when
he unveiled his plan today to make major changes to Medicare as part of
a fiscal 2012 budget resolution. He says his overall objective is to
convert Medicare into a premium support program for which the government
will spend a specific amount for beneficiaries' care, a fundamental
shift from the current fee-for-service program.
Backers of premium support say
it is similar to the health insurance program for federal workers but
others say it may not meet seniors’ needs. Insurers are eager for the
additional business but wonder if payments will be adequate to cover the
cost of care. Here is a guide to some of the issues and questions raised
by Ryan's plan, which faces enormous political hurdles given expected
Democratic opposition.
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A premium support model would
fundamentally change the way that Medicare works by limiting the amount
of money the federal government spends on medical services for seniors
and the disabled. Currently, Medicare is an entitlement program, which
means that the government must help finance every doctor visit and
medical service that an individual needs.
Under a premium support
system, the government would pay a percentage toward the insurance
premium for each individual; there would likely be more help for
low-income and sicker people. And enrollees could kick in more money to
get better coverage.
Henry Aaron, senior fellow at
the Brookings Institution, and Robert Reischauer, president of the Urban
Institute and former head of the Congressional Budget Office, in 1995
were among the first to explore alternatives to Medicare’s system of
paying for individual services.
And in 1998, President Bill
Clinton’s National Bipartisan Commission on the Future of Medicare,
chaired by then-Rep. Bill Thomas, R-Calif., and then-Sen. John B.
Breaux, D-La., developed a “premium
support” idea, but it never became a formal recommendation. Breaux
and then-Sen. Bill Frist, R-Tenn., tried unsuccessfully to advance the
plan as separate legislation.
Today, there are many ways to
shape the model.
“In past iterations, the idea
of premium support involved having government pay a share of the premium
for a defined set of benefits. But the concept is not locked in stone,
and sponsors can clearly modify it with various bells and whistles,”
said Tricia Neuman, vice president of the Kaiser Family Foundation.
“These variations can have
huge implications for both beneficiaries’ spending and for federal
savings.” (KHN is a program of the foundation.)
One variable is how much
federal spending would increase each year. “We don’t want spending per
person to grow disproportionately fast or slow because of things like
variations in birth rates 65 years ago,” said Joe Antos, the Wilson H.
Taylor Scholar in Health Care and Retirement Policy at the conservative
American Enterprise Institute. “It wouldn’t be bad to put some number up
there, but every year or every five years Congress could take a look at
it and say, ‘This is what we want.’”
Is premium support anything
like vouchers?
Ryan argues there are
important distinctions, and some conservative policy experts agree.
In a voucher plan the
government would cut a check and then allow seniors to buy the insurance
policies they want in the private marketplace. Ryan acknowledged on Fox
News Sunday that his Medicare proposals over the past several years
included vouchers, but he recommended premium support in his budget
Tuesday.
A premium support model could
resemble the existing system for federal employees, said Gail Wilensky,
who oversaw Medicare for President George H.W. Bush and is now a senior
fellow at Project Hope. Like vouchers, it limits government
contributions, but also bases the amount on the premium costs of
popular, participating health plans. “That gives you assurances that
there will be a low-cost plan that can be purchased,” she said.
Others counter that premium
support and vouchers are the same thing. “I use the words
interchangeably,” said John Goodman, president of the National Center
for Policy Analysis, a conservative think tank in Dallas. “It just means
that the government limits the amount of money that it puts up, and
people have to add to it if market prices are higher.”
It’s not surprising that
Republicans favor the term premium support, as the word voucher elicits
a strong negative reaction from the public. A
September poll conducted by Pew Research and National Journal found
that 69 percent of people older than 65 opposed vouchers for
Medicare. That opposition came from both Democrats and Republicans.
How does the Ryan plan
compare to the federal employees’ health plan?
Thomas Buchmueller, a health
economist at the University of Michigan, said the plan sounds much like
the Federal Employees Health Benefits Program but also like the
exchanges being set up in the health law. In the
FEHBP model the government provides a set financial contribution
each year.
Employees and retirees have a
variety of options, from catastrophic coverage plans with high
deductibles to health maintenance organizations to high-end plans with
many choices of doctors. Everyone has a choice of at least 10
fee-for-service plans, but the exact number varies by where an enrollee
lives.
FEHBP provides coverage
without regard to pre-existing conditions or age. On average, the
government pays 72 percent of premiums.
Analysts and advocates have
sharply opposing views on the merits of an FEHBP approach vs.
traditional Medicare.
Medicare supporters say it has
lower administrative costs than the FEHBP. But Michael Tanner, senior
fellow with the libertarian Cato Institute in Washington, said the
comparison is misleading because Medicare outsources some of its jobs to
other parts of government such as the Internal Revenue Service, which
collects Medicare taxes.
Jonathan Oberlander, professor
of social medicine at University of North Carolina Chapel Hill, said
FEHBP generally has had trouble controlling health costs over the past
decade. But in 2011, its rates for the enrollee share of premiums
increased by an average of 7.2 percent. That figure is below last year's
8.8 percent increase and lower than rate hikes predicted this year for
large, employer-sponsored health programs by major benefit consultants.
Tanner said FEHBP is not
perfect but is preferable to the current system because it would reduce
federal spending on Medicare.
Buchmueller sees pros and cons
to the Ryan plan. “On the positive side is that you are adding price
incentives at the consumer level so that can be translated to incentives
on plans to control health costs,” he said. The risk is that many
seniors are not that price sensitive.
Oberlander said putting all
Medicare beneficiaries in a system where they have to shop for coverage
would be confusing for many of them. “The idea of Medicare beneficiaries
acting like rational consumers in a medical marketplace is farfetched,”
he said.
“Premium support is a
euphemism for increasing costs for Medicare beneficiaries,” Oberlander
said.
What do Democrats think of
premium support?
Expect many Democrats to
oppose any effort to turn the Medicare program from its current
structure, which guarantees a specific set of benefits, into a program
that designates a set amount of funding for beneficiaries. They fear the
“premium support” approach will require beneficiaries, many of whom live
on fixed incomes, to pay more for their medical care.
That said, some conservative
Democrats worried about the growing federal deficit and debt may back
the plan if they think it’s done in a reasonable way and will help
control Medicare spending. Alice Rivlin, who co-authored a Medicare
overhaul plan with Ryan and was budget director for President Clinton,
said the “premium support” concept has backers in both parties. “It
doesn’t strike me as a particularly Democratic or Republican idea once
you think that you need to do something,” she said.
What do insurers and
industry analysts say about the idea?
It could be a boon for the
industry, providing millions of new customers. "It's a lot of new
business," said Ana Gupte, a Sanford C. Bernstein & Co. analyst.
But there are many questions
about how the program would be structured. “We don’t have a lot of
details on what they’re talking about,” Mark Bertolini, president and
CEO of Aetna, said Monday.
Some of the unanswered
questions include the dollar amount each enrollee would have to purchase
insurance – and how much that would rise in future years. Would it go up
only with general inflation, by the much higher medical inflation rate,
or something in between? Tying the annual increase to general inflation
would save the government money, but cost consumers more.
Other questions include
whether all insurers would be able to offer coverage, or only those who
meet certain price and quality benchmarks. How the program would save
money is also unclear.
Robert Laszewski, a
Virginia-based consultant to the health care industry, said any
Republican plan would likely include all insurers. “It would be along
the lines of ‘here’s the voucher and there’s the market,” he said,
adding that Republicans might create some kind of standard benefit
package, but allow insurers to offer a wide range of policies in
addition to a standard package. He isn’t sure how it would save money,
based on the experience with private insurers in Medicare Advantage,
which offers an alternative to traditional Medicare.
Those plans on average cost
taxpayers more than traditional Medicare. The health law approved by
Congress last year begins ratcheting down the extra payments to Medicare
Advantage to bring them in line with the traditional program. At
present, Medicare Advantage insurers enroll about 24 percent of all
beneficiaries.
This article was written by
Julie Appleby, Mary Agnes Carey, Phil Galewitz, Marilyn Werber Serafini
and Christopher Weaver.
