Opponents to Medicare reform have been making plenty of erroneous claims about Medicare premium support lately, one of the worst being that Representative Paul Ryan’s (R–WI) premium-support model, co-authored by Senator Ron Wyden (D–OR), would cost future seniors an extra $6,400 a year. This claim is simply false.
Buried beneath the wild and scary allegations are the facts, which Heritage expert Rea Hederman details in his recent paper “Why Medicare Premium Support Would Not Cost Future Beneficiaries $6,400 More.”
Here’s the truth hidden under the number:
- It comes from an outdated Congressional Budget Office (CBO) report. The 2011 CBO report used to calculate the $6,400 is based on a different, earlier plan than Ryan’s 2012 budget proposal and current premium-support proposal with Senator Wyden. Hederman writes, “It is inappropriate—indeed impossible—to use CBO’s original 2011 evaluation of the Ryan premium-support proposal to estimate the economic impact of his later plans.” Ryan’s 2011 plan would have cost more for one main reason: It didn’t include traditional Medicare. Without the inclusion of traditional fee-for-service (FFS) Medicare, CBO determined that the Medicare program would incur higher costs. This is because CBO admittedly does not have the methodological tools to properly score the competition used in premium support. However, it is easily capable of scoring the administrative price controls used in traditional Medicare.
- Ryan–Wyden includes traditional Medicare. Premium-support proposals, including Ryan–Wyden, use a market-based competitive bidding system to determine the amount of premium support the government will provide toward the cost of a private plan or towards FFS. Hederman explains, “Under a competitive bidding model, the contribution amount would vary based on bids by the competing companies, reflecting the real costs of providing health care in a competitive environment. FFS would be a bidder, which would establish a minimum benefit for beneficiaries. If FFS is the lowest bidder, then seniors would do no worse than the benefits and premiums under traditional Medicare.”
- Premium support would reduce total Medicare costs. Two separate academic studies have found that premium support would reduce Medicare spending. University of Minnesota economists found that the competitive bidding included in Ryan–Wyden is capable of reducing overall Medicare costs by 9.5 percent annually. Another study, co-authored by an opponent of premium support, also found that premium support models could reduce Medicare spending by 9 percent annually.
- No senior would be worse off under premium support. Introducing competition into the Medicare market would bring down costs for the federal government, but these savings are guaranteed not to affect senior’s benefits at all. As Hederman states, “Moreover, under the 2012 House budget and Ryan–Wyden, a senior would be guaranteed at least two health plans whose premiums meet 100 percent of the contribution amount.”