Ryan has made two apparent concessions to bring Wyden on board. The first is to retain traditional Medicare as one option for seniors, though the details are scarce on how this will work. The danger is that such a “public option” will distort the marketplace. For years, Medicare has used its size as leverage to reimburse doctors at low rates, forcing them to charge higher prices to non-Medicare patients — or, as many have chosen to do, stop taking Medicare patients entirely. Low reimbursement rates could make the traditional program look artificially attractive to enrollees, especially if it is able to undercut the private bids, leaving seniors with a subsidy too small to cover private insurance.
The Medicare drug benefit has no similar “public option” distorting the choices beneficiaries face each year, which has greatly improved the operation of the program. If traditional Medicare is retained as an option in a reform program, it must truly compete on a level playing field. That means breaking it up into regional plans with premiums sufficient to cover full costs and payments to providers that reflect local market rates. With these modifications, the retention of traditional Medicare should not be a deal-breaker, as it could ease passage of the entire concept through Congress.
Ryan also agreed to a backstop on competitive bidding, with the annual rise in the government’s contribution limited to no more than the rise in GDP plus one percentage point. That’s a far higher growth rate than the CPI, but it shouldn’t matter; in the drug benefit, the competitive process has limited premium increases to rates well below this level.
More troubling is how the plan would enforce such a cap should competition not keep costs below it. Again details are scarce, but the authors suggest that Congress will somehow intervene and target cost reduction on the underlying causes of excess growth. That would seem to put far too much faith in the ability of Congress to identify those causes and address them, and it opens the door to the kinds of distorting price controls this kind of reform is intended to avoid.
Nonetheless, there’s far more to like than to dislike in what Senator Wyden and Representative Ryan have proposed. The most pressing economic challenge of our time is the rising costs of entitlement programs, with Medicare topping the list. The program must be reformed soon. Representative Ryan understands this better than anyone else and has made Medicare reform his highest priority. The introduction of the Wyden-Ryan plan is an indication that history is moving his way.