Bryan Dowd on Wyden-Ryan

Given that we’re likely to see many, many articles on Wyden-Ryan in the weeks and months to come, I thought I’d share Bryan Dowd’s thorough reply to Ezekiel Emanuel from December of last year. Emanuel is an immensely creative policy thinker, yet he is also a veteran of the Obama White House and, of course, the brother of former Obama chief of staff Rahm Emanuel, currently the mayor of Chicago. That might explain why he wrote such a misleading article on Wyden-Ryan.

Fortunately, Dowd, a health economist at the University of Minnesota, one of the authors of Bring Market Prices to Medicare, and a longtime champion of national benefit equity in Medicare, cuts through the confusion.

First, Dowd explains that the idea of premium support has been around for a long time and that it preserves the most important element of the Medicare program: 

Ralph Saul and the INA insurance company made the same proposal to Congress in 1979. In fact, it would be fair to say that virtually everyone who has taken a serious look at the Medicare program’s cost problems (which also date from the inception of the program) has come to the same conclusion. Instead of basing the program’s contribution to premiums on the cost of care in the traditional FFS health plan, the government contribution should be based on bids from competing health plans, including both private plans and traditional FFS Medicare. Jessica Vistnes and her colleagues at the Agency for Healthcare Research and Quality found that offering multiple health plans with a level dollar contribution to premiums minimized total healthcare costs compared to offering only one plan. Roger Feldman at the University of Minnesota recently estimated that premium support would result in immediate savings to the Medicare program of 9.5 percent of total program cost–5.6 percent more than the provisions in President Obama’s Affordable Care Act.

Note that this closely parallels the findings of Song, Cutler, and Chernew that we discussed last week. 

Currently, Medicare beneficiaries have a legislative entitlement to varying levels of coverage for different healthcare services. They also have a legislative entitlement to obtain that coverage through the traditional FFS health plan for no more cost than the Part B premium (which is higher for high-income beneficiaries than lower-income beneficiaries). The Wyden-Ryan proposal preserves the first part of the entitlement but changes the second part so that the beneficiary’s out-of-pocket premium is limited to the Part B premium only for the two lowest-bidding health plans in each market area. Beneficiaries who want to join a more expensive plan are free to do so, but they have to pay the difference in premiums out of their own pocket. Since Emanuel believes that traditional FFS Medicare is much more efficient than private health plans, it must follow that FFS Medicare would have no trouble being one of the two lowest bidding plans, and thus he should have nothing to fear from premium competition. [Emphasis added]

Rather frustratingly, most of the attacks on Wyden-Ryan will be rooted in the fact that it employs a global budget. There is a problem with this critique, however:

The second part of the Wyden-Ryan proposal caps the growth on total Medicare spending, but as Emanuel points out, that part of their proposal adds nothing new to current law under the Affordable Care Act, which also caps Medicare spending growth. Sadly, neither the Affordable Care Act nor the Wyden-Ryan proposal contains a plausible mechanism for restraining costs to meet the cap other than cutting provider payments, but drastic cuts in provider payments were required by law even before the Affordable Care Act was passed.

Interestingly, a number of critics, including Emanuel, have evoked the possibility that adverse selection might arise under premium support. Dowd explains why this fear is misplaced:

Emanuel’s concerns over adverse selection suggest that he is unfamiliar with the hierarchical condition categories (HCC) risk adjustment system. The HCC risk adjustment system has been used since the early 2000s to determine the government’s payments to private health plans in the Medicare program. It is designed to ensure that health plans are compensated adequately for the enrollment of high-cost beneficiaries. If Emanuel is indeed familiar with the HCC risk-adjustment system, he needs to explain why he thinks it is fair to use that system to compensate private health plans for their high-cost beneficiaries, but not good enough to compensate traditional FFS Medicare for enrolling the same high-cost beneficiaries.

And finally, Dowd explains that champions of bundled payments should understand that premium support, which is to say a single payment for all care, is the “ultimate form of bundling.” 

Reihan Salam — Reihan Salam is executive editor of National Review and a National Review Institute policy fellow.

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