There are many reasons to be grateful for the introduction of the Medicare “premium support” plan by Democratic senator Ron Wyden and Republican House Budget Committee chairman Paul Ryan.
In some respects, it represents an improvement over the design of previous versions of premium support. Whereas the original Ryan plan offered seniors a subsidy based on a predetermined formula, the Wyden-Ryan plan relies on competitive bidding for setting the government’s contribution rate. Competitive bidding has the potential to cut costs even more than a predetermined index, because an index tends to lock in today’s wasteful spending. Of course, Wyden-Ryan also very usefully shook up the political debate over premium support, making it much more difficult for Democrats to demonize the concept.
But perhaps the most useful byproduct of the Wyden-Ryan plan has been the clarifying effect it has had on the debate over how to slow the rise of health-care costs.
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For some time, it has been easy to get confused over where Obamacare’s apologists actually stand on that question. When it has been useful for them, Obamacare’s apologists have sometimes left the impression that they aren’t averse to competition and choice in health care, and they have pointed to the state-based “exchanges” in Obamacare as evidence of their open-mindedness to a form of competition for the under-65 population. But at other times, their distrust of competition has been on display: They have signaled on numerous occasions that they plan to use the exchanges for regulatory control, not competition. For instance, they have threatened to bar some insurers from participating in the exchanges based on any number of subjective judgments from federal and state regulators.
The reason they sent mixed signals in this regard is that they wanted to get the legislation through Congress, and they concluded, perhaps accurately, that feigned support for competition might help them get the needed votes. Also, for some time, their real plan for cost cutting has been based on extending Medicare’s regulatory reach even further into the health system.
The consistent opposition of most Democrats to premium support is yet more evidence that they aren’t really for competition at all, and never have been. Ever since the news began to spread that Senator Wyden was joining forces with Representative Ryan, liberal commentators of all stripes have denounced the plan in the same apocalyptic terms that the president used to attack the Ryan version of premium support last April. The reaction has been fast and furious for a reason: Wyden-Ryan is the antithesis of their vision for American health care. Indeed, as the debate over the past several weeks has demonstrated, the liberal vision for American health care is embodied in traditional Medicare. They don’t want to move Medicare away from today’s uber-regulatory model. Quite the contrary. They want to drag the rest of American health care toward the way Medicare is micromanaged today.
But are they right? Can we fix American health care by applying Medicare-style regulation to the rest of the health-care sector? Or is Medicare actually the source of today’s dysfunction, and most especially rapidly rising costs?
Dr. Donald Berwick, who recently left his position as administrator of the Centers for Medicare and Medicaid Services (CMS), answered that question this way in a recent interview:
I don’t think Medicare is broken. I don’t think Medicaid is broken. They’re very important social programs of good intent that are accomplishing largely what they intend to accomplish. Health care is broken. The delivery system isn’t working. That’s the problem.
We set up a delivery system which is fragmented, unsafe, not sufficiently patient-centered, full of waste, unreliable, despite . . . great efforts of the work force. We built it wrong. It isn’t built for modern times.
Medicare doesn’t need fixing. Health care needs fixing.
The reason health care is broken is precisely because the govt has gotten involved with it. I have been involved in health care for 27 years now. I have seen "solution" after "solution" put forth by the sage minds of our govt betters. Each attempt at correction has exacerbated the problem. Put simply, govt IS the problem with health care.
The market is the solution, not better management by bureaucrats.
Mr Capretta's "managed care" solution to the government controlled approach to medical care financing is maddening. How many times do HMO's have to be buried before they're really dead. Fee for service is the foundation of free market economics and the free market doesn't need a system of government imposed "health plans" running the show. Of course there is waste and inefficiency in fee for service when the price to the consumer is zero or nearly zero. And of course the answer to that dilemma is not an ever more complex and misdirected system of price controls. But the answer is also not a universal system of prepaid "plans" providing everything and managed from above. That's no better than what we have. Paying the bill for a doctor visit should be no different than paying for a meal in a restaurant or getting service for your car.
Support Ryan-Wyden, but please understand the problem correctly. A major politically feasible way to bring the free market to Medicare would be to eliminate the bureaucracy's prohibition of balance billing and private contracting, two of the main unlegislated free market killers in Medicare system.
Thank you for your well written, easily understood article. My only comment/question would be this; when you speak of the cost of health care, you are not addressing a most important point, what is the true cost of health care? My thought is the government involvement into single payer, employer paid, or other group enrolled government mandated costs keeps competiton out of the marketplace. That is the true driver of this inefficient system. Did I miss your addressing this?
A doctor prescribed an MRI for our uninsured daughter. We called the hospital where it was scheduled to get an estimate of the cost. Their reply was they didn't know, probably north of 3k. My wife did some calling around and found an imaging center that would do it for $500. If she would have had insurance, she likely would have paid that in deductibles! Using other people's money through government programs or insurance removes the demand limits to pricing.
We have a competitive market place! That's why fees are so high.
I quit practice largely because of the inflated fees generated by the natural collusion in the "free market" when the commodity is essential like healthcare. It's time for central control on behalf of the patient. Perhaps it could be considered "collective bargaining" such as ended the sweat shop era of our country's maturation.
The status quo is NOT a competitive free market, and the main thrust of this article involves the author explaining ~why~ the government's near-monopsonic role in the 65+ health care market erodes the competitive forces of the market as a whole. The underpayment of the price maker in Medicare/Medicaid leads to cost-shifting to those in the private market.
"But perhaps the most useful byproduct of the Wyden-Ryan plan has been the clarifying effect it has had on the debate over how to slow the rise of health-care costs."
Want to slow the rise of health-care costs?
Get government out of the insurance business.
Look at any market in which the government participates as a third party and you will see a distortion toward higher prices.
The government's involvement in anything tends to raise costs. Education, any type of insurance coverage, interstate commerce, environmental issues, agriculture, health care are all demonstrably more expensive due to government intervention through mandated regulation, loans, or participation in funding. Not all government intervention is bad, but all government intervention drives up costs.
I like the latest iteration, the Wyden-Ryan plan, is a great step towards controlling the insurance costs for Medicare age folks, and it forms a potential foundation for addressing broader health insurance issues.
The thing that still puzzles me is how the plan is going to reign in costs.
The author mentions "real consumer choice in a competitive marketplace, which would result in resources’ being allocated to the plans that can deliver the best value for the money spent".
My understanding is that the government would define what would constitute basic coverage, and insurers would bid on that plan. The second lowest figure would be the one used to determine the government subsidy per person.
The plan at this point lacks details as to what the government definition of basic coverage would look like. I assume that included would be terms regarding copay, deductible and limits.
It also sounds like plans with higher levels of coverage would potentially be available, with a person paying the difference between those prices and the annual government subsidy.
It seems that given income and wealth statistics that the majority of people would end up on the basic defined plan.
So that defines the insurance cost side of the equation. How does that though reign in delivery costs?
Insurance companies will certainly have reimbursement rates (they do now for private insurance, including employer group). Unless they are too draconian, health care providers will be inclined to accept the basic plan as there will be so many people on the plan. While insurer limits fro reimbursement rates will be in place, the requested reimbursements will continue to climb.
I would also assume that insurers will, in addition to having reimbursement rates, will have accepted diagnostic tests and accepted procedures and therapies for clinical presentations (again, private insurers already do this).
The later has the potential for reducing excessive services. It's also opening the door for people to wail about rationing. Maybe if it's private insurers making the decisions rather than the government people don't care.
It looks to me like insurers are always going to by the intermediary between patients and health care providers from a financial perspective. However it seems that they provide a disconnect as far as patients having an real market pressure on health care providers as far as quality and cost. Even as an intermediary it's not clear to me how they can really effect more productive health care, that is get more for less cost.
The price controls for Medicare and Medicaid will force physicians to stop seeing those patients. In the real world, physicians have to make a profit in order to pay overhead, staff, insurance etc... I know in our practice, we lose about $25 per Medicare patient seen and break even i.e. no profit on Medicaid patients. Most docs are at the tipping point and it won't take much until they stop seeing these patients altogether.
Back when Hillarycare was being formulated, I related to then Congressman Sherrod Brown of Ohio that it would have three unintended consequences:
1. It would cost way more than predicted.
2. It would drive patients into different types of insurance plans like HMO's, against their wishes.
3. It would reduce quality of care by lengthening appointment time scheduling and cause many doctors to leave practice.
Obamacare will do the same. The cost has already gone from "...under $1 Trillion..." to at least $1.4 Trillion, not including the "doctor fix" and will no doubt end up even higher.
Want to get government out of the insurance business? Pass Wyden-Ryan to stabilize and reform health care and Medicare, and also reform government regulations across the board. Until you do those things, you will have a much harder time getting a message through the liberal noisemakers (special interests) and their partners in the lamestream media. And in order to pass Wyden-Ryan, you have to have a Republican in the White House - Democratic special interest groups would never allow a Dem president to pass it, no matter how excellent a law it is (and Wyden-Ryan is one of the most brilliant and revolutionary co-sponsored pieces of legislation of the past 50 years). Once this law is passed by Congress, it will be MUCH easier to enact sweeping tax reforms while getting rid of Dodd-Frank and Sarbanes-Oxley. And if all this sounds like a Newt Gingrich ad, that's because it parallels his proposals almost to a tee.
Since the Ryan–Wyden proposal is based on working principles, there are still many policy questions to resolve. For example, it is silent on the future of Obamacare. Make no mistake: Structural Medicare reform should begin after full repeal of Obamacare. Furthermore, given the depths of our fiscal crisis, the proposal is slow to take effect. The Heritage proposal (External Link) transitions to premium support beginning in 2016; Ryan–Wyden does not begin until 2022, the same date embodied in the House budget resolution.
Nonetheless, Ryan–Wyden continues the conversation about the need for fundamental structural Medicare reform. Trying to save Medicare through more government price controls will not do. Converting the outdated Medicare program into a premium-support model is the best and more honest way forward (External Link).
