House Budget Chairman Paul Ryan’s promise to preserve traditional Medicare, which is likely to appear in his soon-to-be unveiled budget plan, could have big implications for Republican presidential and congressional candidates in November. That pledge — to allow future beneficiaries to remain in the government-run program that allows them to choose their own doctors and pay a percentage of the costs — was part of a proposal to overhaul Medicare that the Wisconsin Republican put forward in December with Sen. Ron Wyden, D-Ore.
Proponents see the new proposal as more politically palatable than last year’s House budget that would have eliminated traditional Medicare, and which may have cost the GOP a congressional seat in New York. But some critics argue the overhaul would change the current program so fundamentally that it might no longer be a desirable – or affordable — option.
“The real question is what it would cost,” and whether seniors would pay more out of pocket than they do now, said Jonathan Gruber, an economist at the Massachusetts Institute of Technology. He cited the risk the government-run plan would attract the sickest people, driving up its costs, while private plans lure the healthiest. In addition, medical providers could abandon the program if Medicare cuts their rates to curb costs.
Ryan is expected to unveil his 2013 budget proposal later this month, and political analysts expect it to include the guarantee of traditional Medicare to help Republican incumbents shake off an unpopular vote they cast last year. The fiscal year 2012 resolution, which was not taken up in the Senate, would have converted Medicare from a program that provides a guaranteed set of benefits regardless of cost, to one that gives beneficiaries a set amount of money to buy coverage from a private health plan. Democrats went on the attack, citing a government analysis that predicted it would greatly increase costs to seniors.
GOP presidential hopeful Mitt Romney embraced a similar model in November — with one important difference. He vowed that future seniors could opt for traditional Medicare. A month later, Ryan teamed up with Wyden to update last year’s plan to include a similar promise – a proposal lauded not just by Romney, but by Republican contender Newt Gingrich. Their rival, Rick Santorum, has said he favors abolishing the traditional program.
Still unanswered, though, is whether the traditional program guaranteed in the GOP proposals would look anything like it does today.
The Romney and Ryan-Wyden plans would replace the current guaranteed benefits with a subsidy, paired with a minimum set of benefits. Federal spending would be capped, with beneficiaries expected to be on the hook for additional expenses – exactly how much is unclear since neither Romney, nor Ryan and Wyden have provided many details.
Republicans “want to be able to say they’re not eliminating the traditional program as we know it. But a lot of experts are saying, ‘Yes you are, by design,’” said Chris Jennings, a health care consultant and former senior health care adviser to President Bill Clinton. “If the policy works as constructed, seniors who wish to stay in fee-for-service will pay more. Moreover, having [fewer] beneficiaries in the traditional program could diminish its bargaining leverage to contain cost growth.”
Grace Marie Turner, president of the Galen Institute, a free-market think tank, disputes Jennings’ interpretation. “We already know that giving seniors choice and forcing private plans to compete works,” she said, referring to the Medicare prescription benefit program.
Under the Ryan-Wyden proposal, all plans, including traditional Medicare, would submit bids for how much they would charge to cover a beneficiary’s health care costs. The government would pay the full premium for the private plan with the second lowest bid, or for traditional Medicare, whichever is lower. Beneficiaries would have to pay the difference if they chose a plan that set rates higher.
Uwe Reinhardt, a health care economist at Princeton University, predicts that traditional Medicare would likely cut payments to medical providers to avoid higher premiums, driving many of them out of the program. “More doctors and hospitals would have the ability to say they are not taking Medicare patients, as they do with Medicaid,” he said. “If the bulk of the elderly are in the private plans, and only the rump are in fee-for-service, it’s easy to make that a poverty program.”
Traditional Medicare could also be at a disadvantage if it is left with the sickest enrollees – a scenario that is already playing out, Gruber said. Today, three-quarters of Medicare beneficiaries are in that program, and a quarter are in private Medicare Advantage plans – mostly HMOs and PPOs. Those plans have enrolled the healthiest seniors since the mid-1990s, using inducements such as subsidized gym memberships, according to an April report by the National Bureau of Economic Research.
Joseph Antos, Wilson H. Taylor Scholar at the American Enterprise Institute, is skeptical that a mass migration from the government-run program would occur. “Traditional Medicare will remain a substantial power in the universe,” he argued. “There are so many people in it. They’re not going to immediately jump to other plans.”
Antos noted the health law is already reducing payments to providers, and the yet-to-be-created Independent Payment Advisory Board is charged with limiting Medicare spending to gross domestic product plus 1 percent – the same ceiling as Ryan and Wyden proposed.
With the wave of aging baby boomers, “it’s really hard to be a provider and not take Medicare,” he said.
Still, the Republican pledges to preserve traditional Medicare and overhaul the program have not persuaded the public. According to a February poll by the Kaiser Family Foundation, 70 percent of respondents and even 53 percent of Republicans said they wanted Medicare “as it is today, with the government guaranteeing seniors health insurance and making sure that everyone gets the same defined set of benefits.”
Only 39 percent of Republicans said they thought Medicare should change to a premium support model, even though they could use the money to buy a traditional plan. Still, how candidates couch the promise to keep traditional Medicare could make a difference. Support varied significantly depending on how the questions were worded.
This article was produced by Kaiser Health News with support from The SCAN Foundation.