Yesterday, House Budget Committee Chairman Paul Ryan (R–WI) unveiled his budget proposal for fiscal year 2012. The transformative proposal would reverse the current trajectory of out-of-control federal spending largely due to the inclusion of a bold proposal to reform the currently unsustainable Medicare program.
Ryan’s approach would change the way the federal government provides for the medical needs of seniors by moving the program to a “premium support” system. Rather than paying directly for medical services, premium support would enable the government to make contributions to the cost of a health plan chosen by the individual themselves from a selection of plans.
Already, mudslinging from the left is in overdrive. Senator Debbie Stabenow (D–MI) said Ryan’s proposal was “pulling the rug out from under seniors,” while House Minority Leader Nancy Pelosi (D–CA) called it “a path to poverty for American’s seniors and children.”
But support for the status quo is a recipe for failure, especially for future generations of seniors. Currently, most beneficiaries must obtain supplemental policies to receive comprehensive coverage under Medicare. Moreover, uncertainties regarding provider reimbursement rates make it difficult to ensure that seniors will have continued access to physicians. And as the population ages and health care costs continue their rapid climb, spending on the program is projected to more than double by 2040. Clearly, change is inevitable.
A recent article from Kaiser Health News (KHN) lays out the details of the Ryan plan, which creates for seniors a system akin to the popular Federal Employee Health Benefits Program (FEHBP), through which Members of Congress and all federal employees receive coverage. KHN explains that under such a system, “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.”
Premium support puts individuals, not government, in charge. Market competition would drive costs down, as insurers would face pressure from the consumer to offer higher value plans that best meet their needs. Moreover, premium support is not a partisan proposal, nor is it a new concept. It has received substantial bipartisan support over the last few decades. Legislation co-sponsored by former Senators John Breaux (D–LA) and Bill Frist (R–TN) in 2001 and based on the work of the 1999 National Bipartisan Commission would have established a premium-support system modeled after the FEHBP. Advocates for this general direction for reform also include leaders at the left-leaning Urban Institute and the Brookings Institution.
Critics of the FEHBP and a premium-support model claim that traditional Medicare has lower administrative costs. However, research by Heritage health economist Robert Book shows that this isn’t the case. Rather, he explains that “on a per-person basis Medicare’s administrative costs are actually higher than those of private insurance—this despite the fact that private insurance companies do incur several categories of costs that do not apply to Medicare.” Moreover, health care economist Walton Francis writes that “the FEHBP has outperformed original Medicare in every dimension of its performance. It has better benefits, better service, catastrophic limits on what enrollees must pay, and far better premium cost control.”
The Heritage Foundation has long advocated using market-based solutions to improve seniors’ health care choices and put Medicare on sound fiscal footing. In their description of how to move forward with a premium-support system, experts Robert Moffit and James Capretta write:
A better Medicare program … will give Medicare patients control over the flow of dollars and freedom to make decisions about how they access medical services. This will stimulate intense market competition among plans and providers, control costs, and promote rapid innovation and higher productivity through the efficient delivery of quality care, thus guaranteeing value in return for retiree premiums and taxpayer dollars.