House Budget Committee Chairman Paul Ryan, R-Wis., left many details to
Congress when he unveiled Tuesday his plan to make major changes to Medicare as
part of a fiscal 2012 budget resolution. He says his overall objective is to
convert Medicare into a premium support program for which the government will
spend a specific amount for beneficiaries' care, a fundamental shift from the
current fee-for-service program. Backers of premium support say it is similar to
the health insurance program for federal workers but others say it may not meet
seniorsf needs. Insurers are eager for the additional business but wonder if
payments will be adequate to cover the cost of care. Here is a guide to some of
the issues and questions raised by Ryan's plan, which faces enormous political
hurdles given expected Democratic opposition.
What is premium
support?
A premium support model would fundamentally change the
way that Medicare works by limiting the amount of money the federal government
spends on medical services for seniors and the disabled. Currently, Medicare is
an entitlement program, which means that the government must help finance every
doctor visit and medical service that an individual needs.
Under a
premium support system, the government would pay a percentage toward the
insurance premium for each individual; there would likely be more help for
low-income and sicker people. And enrollees could kick in more money to get
better coverage.
Henry Aaron, senior fellow at the Brookings Institution, and Robert
Reischauer, president of the Urban Institute and former head of the
Congressional Budget Office, in 1995 were among the first to explore
alternatives to Medicarefs system of paying for individual services. And in
1998, President Bill Clintonfs National Bipartisan Commission on the Future of
Medicare, chaired by then-Rep. Bill Thomas, R-Calif., and then-Sen. John B.
Breaux, D-La., developed a gpremium supporth idea, but it never became a formal
recommendation. Breaux and then-Sen. Bill Frist, R-Tenn., tried unsuccessfully
to advance the plan as separate legislation.
Today, there are many ways
to shape the model. gIn past iterations, the idea of premium support involved
having government pay a share of the premium for a defined set of benefits. But
the concept is not locked in stone, and sponsors can clearly modify it with
various bells and whistles,h said Tricia Neuman, vice president of the Kaiser
Family Foundation. gThese variations can have huge implications for both
beneficiariesf spending and for federal savings.h (KHN is a program of the
foundation.)
One variable is how much federal spending would increase
each year. gWe donft want spending per person to grow disproportionately fast or
slow because of things like variations in birth rates 65 years ago,h said Joe
Antos, the Wilson H. Taylor Scholar in Health Care and Retirement Policy at the
conservative American Enterprise Institute. gIt wouldnft be bad to put some
number up there, but every year or every five years Congress could take a look
at it and say, eThis is what we want.fh
Is premium support
anything like vouchers?
Ryan argues there are important
distinctions, and some conservative policy experts agree.
In a voucher
plan the government would cut a check and then allow seniors to buy the
insurance policies they want in the private marketplace. Ryan acknowledged on
Fox News Sunday that his Medicare proposals over the past several years included
vouchers, but he recommended premium support in his budget Tuesday.
A premium support model could resemble the existing system for federal
employees, said Gail Wilensky, who oversaw Medicare for President George H.W.
Bush and is now a senior fellow at Project Hope. Like vouchers, it limits
government contributions, but also bases the amount on the premium costs of
popular, participating health plans. gThat gives you assurances that there will
be a low-cost plan that can be purchased,h she said.
Others counter that premium support and vouchers are the same thing. gI use
the words interchangeably,h said John Goodman, president of the National Center
for Policy Analysis, a conservative think tank in Dallas. gIt just means that
the government limits the amount of money that it puts up, and people have to
add to it if market prices are higher.h
Itfs not surprising that
Republicans favor the term premium support, as the word voucher elicits a strong
negative reaction from the public. A September poll conducted by Pew Research and National Journal
found that 69 percent of people older than 65 opposed vouchers for
Medicare. That opposition came from both Democrats and Republicans.
How does the Ryan plan compare to the federal employeesf health
plan?
Thomas Buchmueller, a health economist at the University
of Michigan, said the plan sounds much like the Federal Employees Health
Benefits Program but also like the exchanges being set up in the health law. In
the FEHBP model
the government provides a set financial contribution each year.
Employees and retirees have a variety of options, from catastrophic
coverage plans with high deductibles to health maintenance organizations to
high-end plans with many choices of doctors. Everyone has a choice of at least
10 fee-for-service plans, but the exact number varies by where an enrollee
lives.
FEHBP provides coverage without regard to pre-existing conditions
or age. On average, the government pays 72 percent of premiums.
Analysts
and advocates have sharply opposing views on the merits of an FEHBP approach vs.
traditional Medicare.
Medicare supporters say it has lower
administrative costs than the FEHBP. But Michael Tanner, senior fellow with the
libertarian Cato Institute in Washington, said the comparison is misleading
because Medicare outsources some of its jobs to other parts of government such
as the Internal Revenue Service, which collects Medicare taxes.
Jonathan Oberlander, professor of social medicine at University of North
Carolina Chapel Hill, said FEHBP generally has had trouble controlling health
costs over the past decade. But in 2011, its rates for the enrollee share of
premiums increased by an average of 7.2 percent. That figure is below last
year's 8.8 percent increase and lower than rate hikes predicted this year for
large, employer-sponsored health programs by major benefit consultants.
Tanner said FEHBP is not perfect but is preferable to the current system
because it would reduce federal spending on Medicare.
Buchmueller sees
pros and cons to the Ryan plan. gOn the positive side is that you are adding
price incentives at the consumer level so that can be translated to incentives
on plans to control health costs,h he said. The risk is that many seniors are
not that price sensitive.
Oberlander said putting all Medicare
beneficiaries in a system where they have to shop for coverage would be
confusing for many of them. gThe idea of Medicare beneficiaries acting like
rational consumers in a medical marketplace is farfetched,h he said.
gPremium support is a euphemism for increasing costs for Medicare
beneficiaries,h Oberlander said.
What do Democrats think of
premium support?
Expect many Democrats to oppose any effort to
turn the Medicare program from its current structure, which guarantees a
specific set of benefits, into a program that designates a set amount of funding
for beneficiaries. They fear the gpremium supporth approach will require
beneficiaries, many of whom live on fixed incomes, to pay more for their medical
care. That said, some conservative Democrats worried about the growing federal
deficit and debt may back the plan if they think itfs done in a reasonable way
and will help control Medicare spending. Alice Rivlin, who co-authored a
Medicare overhaul plan with Ryan and was budget director for President Clinton,
said the gpremium supporth concept has backers in both parties. gIt doesnft
strike me as a particularly Democratic or Republican idea once you think that
you need to do something,h she said.
What do insurers and
industry analysts say about the idea?
It could be a boon for
the industry, providing millions of new customers. "It's a lot of new business,"
said Ana Gupte, a Sanford C. Bernstein & Co. analyst.
But there are
many questions about how the program would be structured. gWe donft have a lot
of details on what theyfre talking about,h Mark Bertolini, president and CEO of
Aetna, said Monday.
Some of the unanswered questions include the dollar
amount each enrollee would have to purchase insurance – and how much that would
rise in future years. Would it go up only with general inflation, by the much
higher medical inflation rate, or something in between? Tying the annual
increase to general inflation would save the government money, but cost
consumers more.
Other questions include whether all insurers would be
able to offer coverage, or only those who meet certain price and quality
benchmarks. How the program would save money is also unclear.
Robert
Laszewski, a Virginia-based consultant to the health care industry, said any
Republican plan would likely include all insurers. gIt would be along the lines
of eherefs the voucher and therefs the market,h he said, adding that Republicans
might create some kind of standard benefit package, but allow insurers to offer
a wide range of policies in addition to a standard package. He isnft sure how it
would save money, based on the experience with private insurers in Medicare
Advantage, which offers an alternative to traditional Medicare.
Those
plans on average cost taxpayers more than traditional Medicare. The health law
approved by Congress last year begins ratcheting down the extra payments to
Medicare Advantage to bring them in line with the traditional program. At
present, Medicare Advantage insurers enroll about 24 percent of all
beneficiaries.
This article was written by Julie Appleby, Mary Agnes
Carey, Phil Galewitz, Marilyn Werber Serafini and Christopher Weaver.
© 2011 Henry J. Kaiser Family Foundation. All rights
reserved.