Ryan’s Medicare Reform: An Early Supporter Recants

One of the things we’ll hear quite a bit from Republicans in the coming months is that the Ryan/Romney approach to reforming Medicare, which involves issuing vouchers to future retirees so they can choose from various health-insurance options, has bipartisan support. Up to a point, that is true. In the community of economists, policymakers, and policy wonks which has studied and debated this issue, there are some Democrats and progressives who favor moving to a voucher system, although they usually avoid that phrase and use the less controversial term “premium support.”

In an op-ed in the Wall Street Journal a couple of days ago, Joseph Rago, a member of the paper’s editorial board, pointed out that it was Alain Enthoven, a Stanford economist who informally advised the Clinton Administration about health-care reform, who in 1978 first suggested switching to a voucher system, arguing that competition among rival health-care providers would help keep down costs. In the mid-nineties, this idea was endorsed by other moderate economists, including Henry Aaron, of the Brookings Institution, and Bob Reischauer, the longtime president of the Urban Institute. It was Aaron and Reischauer who coined the term “premium support.”

More recently, some Democratic policymakers have put forward specific plans that involve shifting future retirees from traditional Medicare into a system based on vouchers. In November of 2010, as part of a long-term plan to balance the budget, former Senator Pete Domenici, a New Mexico Republican, and Alice Rivlin, who served as budget director in the Clinton Administration, suggested transforming Medicare into a voucher system starting in 2018. And in December of last year, Oregon Senator Ron Wyden—a Democrat—joined Paul Ryan in proposing a similar premium-support plan that would start in 2022. (Wyden subsequently voted against Ryan’s budget for 2013, which contained the voucher idea along with some hefty cuts in Medicare funding.)

So yes, there are some progressives who have supported the basic ideas underlying Ryan’s plan, even if they would criticize many of its details. (Ryan initially proposed issuing vouchers that wouldn’t keep up with the costs of rising health care, and he has failed to endorse the stringent oversight that would be necessary to prevent private insurance companies gaming the system.) But there are also a lot of progressive health-care specialists who are generally amenable to the idea of competition, but who have looked closely at Ryan’s solution and found it wanting. One of them happens to be Henry Aaron—the man who helped give “premium support” its name.

At a seminar organized by the Brookings Institution last December, Aaron, along with two other experts on health-care policy—Judy Feder, a professor at Georgetown, and Paul Van de Water, a senior fellow at the Center on Budget and Policy Priorities—explained why he now thinks it would be dangerous and foolhardy to switch to vouchers, and why sticking with a modified version of the existing system is a much better idea for seniors. “My text today is the remark attributed to John Maynard Keynes,” Aaron wrote. “When the facts change, I change my mind. What do you do, sir?”

And what are these facts?

1. Traditional Medicare works better, and more cheaply, than most private-insurance plans. With tens of millions of enrollees, Medicare can exploit its bargaining power to pay health-care providers less than private insurers do: that is the great advantage of a single-payer system. Typically, doctors and hospitals receive twenty or thirty per cent less from Medicare for a given procedure than they do from private insurers. They don’t like it, but they need the business.

2. Medicare’s big challenge is demographics, not cost inflation. We’ve all seen the projections: if nothing is done to constrain it, spending on retiree health care will virtually swallow the federal budget. But what’s driving that spending is the growing number of enrollees—another million and a half Baby Boomers every year—rather than rising spending per person. “[W]hen it comes to what health-care costs per person, Medicare’s growth rate is remarkably low,” Feder pointed out—about three per cent a year over the next decade, according to the latest projections, which is considerably less than the cost inflation in the private-insurance sector.

3. In the health-care industry, competition hasn’t produced the savings that economists expected, and it has led to other problems, such as gaps in coverage. Remember the rise of H.M.O.s, another idea promoted by Enthoven that was supposed to revolutionize health care and drive down costs? Part of the problem is the advance of costly treatments. But a bigger problem is that private insurers, rather than haggling with doctors and hospitals, try to make money by limiting the procedures they cover and by aggressively managing their risk pools—that is, taking on fewer sick people. This problem can be addressed through vigorous oversight, but that’s not an easy thing to implement, especially when half of Congress is controlled by a party that breaks out in hives at the very idea of government regulation.

4. Significant measures have already been taken to reduce the future growth of Medicare spending. Under the Affordable Care Act of 2010—“Obamacare”—the formula that governs payments to health-care providers was altered to reduce outlays significantly—about five hundred billion dollars over ten years. Assuming that these measures go into effect, their impact will be very noticeable. Citing numbers from the Congressional Budget Office, Feder wrote that “Medicare premiums, currently estimated to be 11 percent lower than private insurance premiums for the same benefit package, will be about 30 percent lower by the end of the next decade.” (This change in the growth in outlays accounts for much of what Romney has been referring to as money taken away from seniors.)

5. Retirees can already make choices about what sort of health-care coverage they want. Although Medicare is often regarded as a monolithic system, it has actually changed quite a bit. Aaron noted: “The sort of competitive system that voucher advocates say they want to create already exists. The average Medicare enrollee today may choose among an average of 24 plans, in addition to traditional Medicare, including 10 health maintenance organizations.”

6. For many elderly patients, choice isn’t necessarily a good thing. Back to Aaron: “The Medicare population contains many people with mental disabilities and early or advanced mental decline. The recently announced Wyden-Ryan plan promises to provide voucher recipients with ‘clear and easy to understand information’ on various plans. Has any of you actually read the clear and easy to understand (!) information that Medicare and private insurers now distribute to enrollees? To think that providing ‘clear and easy to understand information’ equips those with mental disabilities or early-state dementia to deal with competing insurers is delusional.”

Like Aaron, I find these points pretty persuasive. With the passing of the Affordable Care Act, the country has just embarked upon one costly and complicated exercise in health-care reform based upon private insurance, the consequences of which won’t be clear for years. Following this up by tearing apart Medicare, a costly but cost-effective program that has served seniors well for almost fifty years, would surely be a privatization experiment too far.

Original Article
Source: new yorker
Author: John Cassidy