House Republicans To Tackle Medicare Reform

In my November blog column I highlighted a number of health care policy changes pertaining to the Affordable Care Act that Republicans may seek to make in the new Congress. But right at the top of the list alongside ACA is their longstanding goal to radically restructure the two major health care entitlement programs, Medicare and Medicaid.

It appears that House Republicans are interpreting the 2014 elections results as giving them the green light to proceed in the 114th Congress with a version of the old Paul Ryan budget which in addition to repealing ACA would make sweeping changes to Medicare and Medicaid.  As it now stands, according to the New York Times, plans are to use the congressional budget process “to overhaul Medicare, calling for voucherlike “premium supports” to steer people 65 and over into buying commercial health insurance, and to transform Medicaid, which would be cut and turned into block grants to state governments.” I will leave a discussion of Medicaid and how we can make reasonable changes in both programs to address their financial problems for another day. Today I want to put premium support under the microscope and look at what it will mean for the Medicare program and current and future beneficiaries.

Under Ryan’s 2015 budget resolution, as in his budget plans for the past several years, Medicare over time would be converted from a defined benefit into a defined contribution system. Anyone who becomes eligible for Medicare in 2024 or later would receive a fixed amount of money to purchase either private health insurance or enroll in the traditional fee for service program. While Chairman Ryan        has provided few details as to how the payment would be calculated, Paul Van de Water of the Center  on Budget and Policy Priorities reports that Ryan’s staff is purportedly looking at an “average-bid” model whereby a premium support payment would be based on the local average bid of private plans and traditional Medicare. If you choose a plan more expensive than the premium payment received than you pay the difference out of pocket.  According to a 2012 study by the Kaiser Family Foundation a    premium support plan would have resulted in major increases in premium costs in various parts of the country had it been operable in 2010 unless people shifted to a less expensive plan.  Ryan and other proponents of premium support argue that it will encourage providers to compete against each other on the basis of quality and price and could result in substantial savings for beneficiaries.  But the opposite appears to be the fact. Over time Ryan’s plan will sharply reduce health care subsidies to beneficiaries requiring them to absorb more and more of the cost of coverage. Since the median income of Medicare households is approximately $25,000 per year, and most spend three times as much of their budgets on out of pocket health-related expenses compared to non-Medicare households, many seniors would find that coverage is unaffordable at higher costs.

Offering both private plans and traditional Medicare uses the promise of choice to disguise the undermining of Medicare’s function to deliver guaranteed benefits, combine resources and spread risk. The private plans will cherry-pick healthier and less costly seniors and leave Medicare with a growing pool of sick and frail seniors. The traditional program will become more expensive for the federal government and beneficiaries. With a shrinking population, administrative costs will spiral, fewer providers will participate in the program and Medicare will be left to wither on the vine.  This would fulfill two longstanding and cherished objectives of rightwing Republicans- sharply cutting nondefense domestic spending and ending one of the most effective government programs in our nation’s history.

Paul Ryan and other GOP leaders may believe the 2014 elections gave them a mandate to slash entitlement programs yet in a recent speech Senator Jeff Sessions (R-AL), the incoming chairman of the Senate Budget panel, seemed to splash some cold water over using the congressional budget process to do a wholesale rewrite of Medicare and Medicaid and the tax code. And then of course standing in the wings is President Obama who likely will veto any reconciliation measure that includes Ryan’s premium support plan.

One final point. House Republicans had better be careful what they wish for.  Polls consistently have shown that the American public strongly favors the current defined benefit structure of the Medicare program. When Governor Romney chose Paul Ryan as his running mate in 2012, Ryan’s plan immediately became a proverbial hot potato in the campaign. A Washington Post poll found that voters were overwhelmingly opposed to it in the three bellwether states of Ohio, Florida and Virginia, and it had the effect of largely blunting the GOP attack on ACA. Do GOP lawmakers really think that public attitudes have changed much since then? For Democrats, premium support may prove to be the gift that keeps on giving in 2016.


Chuck Loveless is a Senior Advisor at NVG, LLC

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