“Premium Support” Is Just Another Way To Privatize Medicare

Note: This post comes from my new blog reforminghealth.org I have left The Century Foundation and can be reached at nfreund2@gmail.com

Out of the rubble of the failed budget deficit negotiations, it seems a new movement is afoot to transform Medicare into a “premium support” program with the goal of moving more seniors and the disabled into the private insurance market.

As Robert Pear reported last week in the New York Times;

“Members of both parties told the [budget deficit] panel that Medicare should offer a fixed amount of money to each beneficiary to buy coverage from competing private plans, whose costs and benefits would be tightly regulated by the government.”

Before we go any further, let’s be clear: Premium support means very different things to different people. And the “supercommittee” Democrats flat-out rejected any notion of privatizing Medicare once it became clear that their Republican counterparts wouldn’t budge on accepting revenue increases (i.e. raising taxes on the very rich) to go along with cuts to entitlements like Medicare, Social Security and Medicaid.

To Republicans who support Rep. Paul Ryan’s (R-WI) plan to “change Medicare as we know it,” premium support means providing seniors and other beneficiaries with a government voucher that is paid directly to private insurance companies. These private policies will be more expensive than traditional Medicare with its enviable rate of scale and bargaining power. And because the value of the vouchers in the Ryan scenario would increase at a rate slower than actual medical costs, many seniors will end up having to pay a huge portion of their insurance premiums—or be forced to enroll in inadequate plans that leave them unable to access needed services.

The Congressional Budget Office issued a report on Ryan’s budget plan last April that gave ammunition to critics of his Medicare voucher idea. “Under the proposal, most beneficiaries who receive premium support payments would pay more for their health care than if they participated in traditional Medicare,” according to the CBO. And because some seniors might choose to not buy coverage— “the number of older Americans without health insurance would be higher.”

If, as the Times reports, some Democrats are warming to the idea of premium support for Medicare, they are not embracing Ryan’s draconian voucher plan. Instead, they may be reconsidering the merits of a premium support plan championed by Alice Rivlin, director of the Office of Management and Budget during the Clinton administration and Pete Domenici, former chairman of the Senate Budget Committee. During the budget deficit negotiations, Rivlin urged the supercommittee members to consider an insurance exchange for Medicare beneficiaries—with a public option; “Private plans would compete with the traditional Medicare program and would have to provide at least the same benefits. The federal contribution in each region would be based on the cost of the second-cheapest option, whether that was a private plan or traditional Medicare,” the New York Times article explains. The idea of the Rivlin-Domenici plan is to move Medicare toward a premium support model, “without destroying the individual entitlement at the heart of the program.”

In the end, the supercommittee decided on nothing; leaving the current Medicare program fundamentally intact, while still open to the incremental cuts and reforms that will inevitably follow as the ACA rolls out and deficit talks resume. Clearly perturbed, Senate Majority Leader Harry Reid characterized the panel’s negotiations over Medicare this way; “Republicans relentlessly sought to end Medicare as we know it by privatizing the program and putting seniors and future generations at the mercy of insurance companies.”

Reid is right; if the experience of Medicare Advantage has taught us anything it’s that privatizing a government entitlement does not guarantee either savings or better quality. It certainly doesn’t guarantee equity. In fact, as my colleague Maggie Mahar pointed out earlier this year on the blog Health Beat, even before the broad structural changes and payment reforms of the Affordable Care Act have set in, Medicare looks like a pretty good deal. Mahar writes;

“Both Standard & Poor’s (S&P) and the Congressional Budget Office (CBO) now have 18 months of hard data showing that Medicare spending has begun to slow dramatically. Health reform legislation has not yet begun to kick in to pare Medicare payments, but something is changing on the ground. As I pointed out in [an earlier] post, Medicare spending began to plunge in January of 2010. After levitating by an average of 9.7 percent a year from 2000 to 2009, CBO’s monthly budget reports show that Medicare pay-outs are now rising by less than 4 percent a year.”

And what about private insurance companies? S&P reports that spending growth by commercial health insurers climbed by 7.35 percent from May 2010-May 2011 while Medicare claims rose by just 2.6 percent for that same one year span.

There is no question that Medicare needs an overhaul; reducing incentives that lead to over-treatment, waste and abuse, and moving toward well-coordinated, patient-centered, and, yes, cost-effective care. But turning it into a premium support system is not the answer. Henry Aaron , the noted health economist and Brookings Institute Fellow who co-founded the “premium support” concept back in 1994, wrote recently in Health Affairs that he has begun to see the shortcomings of such a program when it comes to Medicare and insuring the elderly and disabled. Instead he points to untested, but promising initiatives in the Affordable Care Act that offer a chance to effect real change. “To abandon this experiment even before it has been given a fair chance to succeed seems foolish to me,” writes Aaron.

The Center for American Progress summarizes Aaron’s new concerns about premium support best; “First, he finds little reason to believe there are adequate regulations and safeguards to ensure seniors make informed choices. Second, he believes the gains from choosing among insurance have been exaggerated. And third, the Affordable Care Act now authorizes Medicare to use its purchasing power to spur delivery reforms, which he believes is the right direction to go.”

I wholeheartedly agree.

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