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Who’s for Premium Support?



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The release of the Medicare-reform proposal cosponsored by Democratic senator Ron Wyden and GOP House Budget Committee Chairman Paul Ryan is a milestone event in the long-running struggle for sensible entitlement reform.

For starters, as others have already noted, it completely pulls the rug out from under the long-planned “Mediscare” campaign of 2012. As former House Speaker Nancy Pelosi put it, nothing would make the Democratic political machine happier than to have the 2012 election fought on the issue of “Medicare, Medicare, and Medicare.” And by that, Democrats do not mean a balanced debate on the need for modernizing the program. No, what they have in mind is an all-out demonization campaign focused on the supposed intention of the “Ryan plan” — the version of Medicare “premium support” included in the House-passed budget plan from earlier this year — to “end Medicare as we know it.” That particular dose of political snake oil, a world-class whopper even by Washington standards, is going to be a good bit tougher to sell now that a liberal senator has endorsed that very same vision for reform that Ryan advanced in April. In other words, if there really is a concealed and sinister effort underway in Congress, led by Paul Ryan, to deny poor and vulnerable grandmothers everywhere the health care they need by taking away their Medicare coverage, somehow or other that evil plan has now garnered bipartisan support.

The Wyden-Ryan proposal has also brought to the surface an important issue of how “premium support” is designed. The version that Ryan released in April 2011, and which passed the House as part of the GOP’s budget plan, would have given seniors a subsidy each year based on a predetermined government formula. The new version would instead set the government contribution based on bids from the competing plans, including the “public option” of traditional “fee for service” Medicare. Setting aside the public option for a moment, moving toward competitive bidding is actually an improvement over the previous version. Most analysts agree that the potential for cost-cutting in Medicare is immense. With a government-set formula for payments, there is a danger that excessive costs get locked into the payment stream. With competitive bidding, there is much greater potential for deep cost-cutting, as plans that find new ways to deliver more for less can attract enrollment with low premiums.

Regarding the retention of traditional Medicare as an option, the devil is in the details, and the details haven’t been sketched out yet. For this to work well, two things must happen. First, Medicare must be broken up into regional plans that compete fairly with the locally run private options. Among other things, that means each local Medicare plan must have separate accounting and charge premiums sufficient to cover costs. Further, the plans must not be allowed to set artificially low reimbursement rates for services. In a competitive market, the private plans must contract with a network of providers to ensure access to care for their enrollees. They can’t just dictate fees, and neither should Medicare FFS. To prevent cost-shifting and ensure fair competition, Medicare must pay something close to market rates for services.

The Wyden-Ryan reform plan also includes a limit on the growth of the government’s contribution, in the event that the bids coming in from the private plans and the public option do not hold down cost growth sufficiently. Under their plan, the government contribution would be limited to GDP plus one percentage point growth each year — the same growth rate imposed by Obamacare and enforced by the infamous Independent Payment Advisory Board (IPAB). Although the growth rates are similar, the mechanism for enforcement under Wyden-Ryan would be entirely different, with Congress charged with identifying the culprits for cost growth and taking appropriate action.

#more#While it is certainly better than the IPAB, this cap on Medicare growth is nonetheless not a very good idea. There’s no reason to believe Congress would have an easier time in the future than it does today in agreeing on ways to trim Medicare costs, so this cap would likely go unenforced. But that’s not a fatal flaw, because the point of premium support is to unleash the power of the marketplace, not to impose artificial caps.

What’s been most telling about the introduction of the Wyden-Ryan concept has been the reaction of the White House and its Democratic allies. For months, we have heard the argument made that Republicans are hypocritical for opposing what is said to be the “premium support” model of Obamacare while pushing for it in the Medicare context. But, if that’s true, what could possibly explain the president’s instantaneous and adamant opposition to Wyden-Ryan, given that he supposedly pushed the same concept for the rest of the population in Obamacare?

The answer has two parts. First, it should be obvious that what the president is doing here is playing a crass political game. He has no record to run on in 2012, with the economy still sputtering and his signature effort — Obamacare — as unpopular as ever. Therefore, he is planning on running the most negative campaign in memory, in the hope that he can hang on to power by demonizing his adversary. And for that strategy to work, he must be able to paint the GOP as the enemy of Medicare. And so there was no way he would ever do anything but denounce Wyden-Ryan, no matter what it contained.

Second, despite the rhetoric, the president is quite clearly not a supporter of market-based health-care reform. His opposition to premium support in Medicare is in fact a reflection of his true colors on this issue. What he wants is a health system dominated by federal regulation and government-administered prices. He has that in Medicare already, and will never willingly give it up. Indeed, President Obama’s real aim is to drag the rest of the health system toward the Medicare model of government micromanagement and regulation. The so-called “exchanges” that are part of Obamacare are not really intended to be functioning marketplaces at all; they are just halfway houses toward a full government takeover.

Medicare is central to the nation’s fiscal challenge, and to the problems in American health care. It is imperative that the country move expeditiously to inject market discipline into the program. The introduction of a credible bipartisan plan to do just that — the Wyden-Ryan plan — is a very welcome sign that we are making progress toward the goal.



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