Medicare’s Private Option
It points to the broader health-care solution: the market.


James C. Capretta

Supporters of Obamacare frequently contend that the health-care law, now being implemented nationwide, is really just a version of a Republican reform plan. As they describe it, the law is built on consumer choice and competition among private insurers. What could be more Republican than that?

Of course, this superficial description of Obamacare skates past the law’s massive shift of power and authority to the federal Department of Health and Human Services (HHS) and the sidelining of individual, employer, and state decision-making roles in the process. HHS now has the power to decide every important question regarding what kind of insurance Americans must purchase, where they must get it, and how much it will cost. The law also imposes costly and job-destroying mandates on individuals and businesses, raises taxes by at least a half-trillion dollars, and piles a massive new entitlement obligation on top of the unaffordable ones already on the federal books. If you are willing to ignore all of these elements that push U.S. health care toward centralized, and costly, government control, then sure, maybe a Republican or two could support it.

When it was being considered, no Republicans in Congress were willing to look past Obamacare’s clear aim, which was to move U.S. health care as much as politically possible toward a fully government-run system. If Obamacare retains a surface resemblance to a private-sector-driven, market-based system, it is only because those who wrote it and pushed it through Congress believed they could go no farther in 2010 without fragmenting the coalition in support of the legislation. There should be no doubt about the overall direction, though: Obamacare is a massive step toward centralized government control, and that was its purpose.

This explains why the same administration that claims to be implementing a market-based reform for working-age Americans is simultaneously trying to undermine the only market-driven elements now operating in Medicare — namely, the Medicare Advantage program and the prescription-drug benefit. The apparent contradiction is actually an indication of consistency. The administration and its supporters distrust markets, consumer choice, and competition in health care, so they devised an approach for working Americans that minimizes these elements as much as possible, while handing over to HHS the power to impose ever more stringent regulations in the future. At the same time, in Medicare, which is already dominated by a government-run insurance option, the administration’s objective is to strangle and eventually eliminate those aspects of the program that are outside full government control.

The consequences of an effort to squelch competition in Medicare would be significant. Although Medicare has only about 49 million enrollees (out of a population of 316 million), the program has an outsized influence on the structure and direction of American health care. In particular, Medicare heavily influences how the nation’s network of hospitals and physician groups is organized. This is why the Medicare-reform vision of Representative Paul Ryan (R., Wis.) — based on what is called premium support — is so important. If the program were to move toward genuine consumer choice, with the government-run Medicare option competing on a level playing field with private plans, and with the consumers having an incentive to pick high-value, low-cost coverage to keep their premiums down, pressure would build for both the government option and the private plans to hold down their costs. This, in turn, would put pressure on hospitals and physicians to hold down their own costs and provide more convenient and higher-quality services to their patients. It is a vision that could transform Medicare, and begin to transform all of U.S. health care. Which is exactly why the Obama administration views it, along with the market-based elements of the current Medicare program, as the primary threat to its statist vision of health care.

Medicare Advantage (MA) has been targeted by the administration for deep cuts since early in 2009. MA plans are private-insurance options in Medicare. Seniors can elect to receive their benefits through an MA plan instead of the traditional, government-run insurance option. For seniors electing to enroll in MA, the government pays a fixed monthly amount to the plans, and the plans then must provide the entire Medicare package of services. These plans have proven very popular, especially in recent years. Enrollment in them now exceeds 14 million people, or more than one in four Medicare participants.