GOP’s Medicare Changes Could Weaken Traditional Benefit


The House GOP’s budget proposal, adhering to standard Republican health care ideas, would largely privatize the Medicare program. Depending on how it is structured, it could produce budget savings but also hurt low-income seniors and damage the traditional entitlement program.

The budget proposal suggests several major changes to the current Medicare program, including premium supports — i.e., vouchers. These changes are estimated to produce $449 billion in savings over 10 years.

This isn’t a new conversation. It dates back to Rep. Paul Ryan’s (R-Wis.) 2010 budget proposal when the current House speaker chaired the Budget Committee.

House Republicans re-upped the Medicare privatization proposals in the budget that passed the committee last week. It is unclear how much further the actual overall budget document will go — there aren’t enough GOP votes to pass it on the House floor — but it is still useful to analyze as a statement of the party’s policy principles.

“New plans will compete with traditional Medicare to provide the best coverage options for seniors,” the budget says. “Traditional Medicare will always be available for seniors currently in the program and for future generations of retirees.”

Health advocates are concerned that the proposed Medicare changes would shift costs to seniors by requiring them to pay more for office visits or in premiums. This could be particularly difficult for low-income Medicare enrollees. However, without more details the proposal is difficult to analyze.

“It is vague on premium support and restructured benefits — and for both, details really matter,” said Tricia Neuman, a senior vice president at the Kaiser Family Foundation.

It’s unclear whether Democrats would support some kind of premium support model. While it’s a traditionally Republican idea, Oregon Sen. Ron Wyden, now ranking Democrat of the Finance Committee, struck a premium support deal with Ryan in 2011. There has also been a surge in bipartisan support for Medicare Advantage this year, which was also a predominantly Republican-supported policy idea until recently.

Both Medicare Advantage and premium support play up the role of private insurers in Medicare. But it’s a big jump from a system in which Medicare Advantage coexists with traditional Medicare to an entirely new system with lots more competition for Medicare. What’s more, Medicare Advantage payments today are based on a statutory formula, whereas a premium support system functions by private insurers competing with the government.

Transitioning from traditional Medicare to a premium support model would uproot the current entitlement-based system, advocates say. Medicare is now divided into several different components. Part A pays for hospital care, while Part B pays for doctor visits and outpatient services, and Part D pays for prescription drugs. (Part C is the private Medicare Advantage program.) The different programs function independently of one another, and Part D plans are offered by private insurers. Part A and B have different cost-sharing rules and funding sources.

The GOP budget proposal would combine Parts A and B and then largely privatize the new hybrid system, following the model of Medicare Advantage and Part D. Private insurers would offer plans covering both hospital care and doctors’ visits, competing with traditional Medicare. The government would provide vouchers to seniors who choose a private plan. (That’s why it’s called premium support.)

There are various ways to decide how much premium support should be given to an enrollee. The GOP budget is unclear about how the proposed system would work. An earlier analysis of different ways to structure the model, however, offers a useful example of why the details make a difference both for seniors and for the government’s bank account.

A Congressional Budget Office report from 2013 looks at two different ways of setting up a premium support model — the average-bid model and the the second-lowest bid model. A “bid” is essentially an insurer’s benefit package, covering the services included in Parts A and B.  Under a premium support plan, the government would pay insurers an amount tied to a regional benchmark for each enrollee. The benchmark chosen drastically impacts the government savings and out-of-pocket costs for enrollees.

In general, beneficiaries enrolled in a plan that equals the benchmark would pay a standard premium. Those who choose a plan less than the benchmark would get the difference between their plan and the benchmark subtracted from their premium. Beneficiaries who choose a more expensive plan would pay correspondingly higher premiums.

Under the average-bid option, the benchmark would be set by finding the average of all bids, including traditional Medicare. It would save $15 billion in 2020, according to the CBO. Enrollees’ premiums and out-of-pocket expenses would be less than they are under current law.

In the second-lowest bid option, the benchmark for a region would equal the lowest of a pair of bids — the second-lowest bid submitted by a private insurer and traditional Medicare’s bid.

The second-lowest bid option saves the federal government a lot more money — $45 billion in 2020, according to CBO. But beneficiaries would pay more for their health care than they currently do.

Aside from the math, health analysts have raised a few other general concerns with overhauling Medicare in this way. Shifting to a premium support model could radically redistribute costs, potentially making health care unaffordable for low-income seniors, they say.

The model could also put traditional Medicare at a competitive disadvantage. If private plans are able to structure their benefits in a way that attracts healthier enrollees, they could then undercut traditional Medicare in the bidding process. This would eventually make Medicare more expensive compared to private plans, while it also would be covering sicker enrollees, a problem that would spiral.

Eventually, seniors wouldn’t want to be on traditional Medicare because of the cost, leaving an open question as to what happens to the sickest seniors on an increasingly expensive government plan. “The choice of continuing to have traditional Medicare becomes less and less real over time,” said Edwin Park, co-director of health policy at the Center for Budget and Policy Priorities.

Morning Consult