How to fix Medicare without fuss.
It seems Republicans won’t be throwing granny off a cliff, after all. Four years after it first passed the House, Rep. Paul Ryan’s, R-Wisconsin, controversial Medicare overhaul scheme has been put on the shelf.
“Premium support,” a form of voucherization, has long been the GOP’s main idea for fixing the 50-year-old, $671 billion, growing-at-7.3-percent-a-year Medicare program. It’s not a bad idea. Indeed, it would make Medicare not only cheaper for taxpayers but also better for seniors, by making the program more efficient.
But this past March, GOP leaders quietly euthanized the concept, deleting the by-now traditional House language endorsing the Ryan plan from their 10-year budget resolution, a nonbinding but important roadmap for lawmakers.
Of course, Republican leaders deny they’re giving up. But that’s spin. Premium support is dead, and not just because President Barack Obama would veto it. It’s dead because even Republican House leaders won’t bring it up for a vote.
Instead, those leaders have been busily shifting their focus to more modest goals like reversing Obamacare’s $716 billion in 10-year Medicare cuts and repealing Obamacare’s Independent Payment Advisory Board, a thinly disguised Medicare rationing panel. (One that’s also radically unconstitutional.)
And it’s just as well. Ryan’s Medicare proposal was a nonstarter. Democrats never liked it. Senate Republicans aren’t enthusiastic. Even House Republicans, who have been most supportive, began to bail out with the first airing of that infamous “granny” ad in the summer of 2011. (The ad was essentially dishonest, by the way. Republicans weren’t proposing to end “Medicare’s guaranteed benefits,” only to change how they’re delivered. But in politics, as in war, truth is usually the first victim.)
One prominent Democrat, Sen. Ron Wyden of Oregon, did endorse a version of the GOP plan at the end of 2011. But he distanced himself from the Ryan-Wyden plan as soon as the Wisconsin congressman became Mitt Romney’s vice presidential pick. It didn’t help that, from the outset, Ryan and his colleagues defensively vowed not to impose the reform on anyone ” in or near retirement“—as if it were poison.
The fact is that premium support is a better model. As health financing expert Walton Francis showed in his excellent 2009 book, “Putting Medicare Consumers in Charge: Lessons from the FEHBP,” by every measure premium support runs circles around old-fashioned bureaucratic programs like Medicare. (FEHBP stands for the Federal Employees Health Benefits Program. Most people know it as the congressional health plan.)
Premium support reduces costs and improves quality by harnessing the awesome power of consumer choice and competition. One need only compare, as Francis did, the outstanding record of the congressional health plan with Medicare’s out-of-control costs, rampant fraud and creeping rationing to understand why the congressional plan is rightly considered the gold standard.
Premium support is the future, or should be. But for now, Ryan’s bill is dead. So what should happen next?
Reforming Medicare needn’t be an all or nothing proposition. It can be approached incrementally. And if done right, incremental reforms can be very popular with seniors. The best incremental road, in my view, consists of three modest, almost baby steps:
- Make Medicare voluntary for seniors.
- Make Medicare Advantage more attractive to seniors.
- Let seniors vote with their feet.
That’s it. Market forces can take it from there. No pain. No massive cuts. Just more freedom, creating the conditions for a better Medicare down the road.
Let’s look at those three steps more closely.
1. Make Medicare voluntary for seniors. Medicare’s individual mandate—yes, it has one—is even more severe than Obamacare’s. In one federal judge’s memorable phrase, Medicare is a “mandatory benefit.” (Note: I’m referring to Medicare itself, not the taxes that fund it.) But unlike Obamacare’s individual mandate, Medicare’s is unnecessary. It’s not the linchpin of the whole system. It’s a luxury we can eliminate, and should.*
Under a policy imposed (without authority) by the Clinton Administration in 1993, seniors who decline to be enrolled in Medicare, or who actively disenroll from it, are automatically deprived of their Social Security retirement benefits and must also pay back any Social Security they’ve received to date. That’s a very harsh penalty. Compare it to Obamacare’s penalty for non-participation (for the year 2015): $325 or 2 percent of your yearly household income. (Assuming, that is, you aren’t one of the millions of Americans eligible for an exemption from the mandate.)
But wait. Won’t there be a rush to the exits if Medicare becomes voluntary for seniors? Won’t the healthier people leave the program, driving up costs for those who remain behind?
No, because the current Medicare benefit is generous, despite its flaws as an insurance product. Those flaws are admittedly pretty serious, including no out-of-pocket cap, a bizarre cost-sharing structure and an unconscionable lack of catastrophic-expense protection. Due to poor design, Medicare covers only about half of the typical senior’s medical costs. But for most seniors that’s still a godsend, since the existence of Medicare has killed off private insurance alternatives for people over 65.
Now, to be sure, there would be a tiny exodus, consisting mostly of people who can either afford private coverage or who object in principle to relying on a government program – the rich and the right-wing. But that outflow will never exceed a trickle, so long as Medicare offers decent coverage. So making Medicare voluntary will actually improve the program. The freedom to vote with one’s feet will create a natural escape valve for rationing pressures, and a valuable feedback mechanism for policymakers. And it’s the right thing to do.
2. Strengthen Medicare Advantage. And that brings us to the happy little secret of Medicare reform. We already have premium-support, in the form of Medicare Advantage.
Medicare Advantage is an existing option within Medicare that lets seniors receive their Medicare benefits through a private health insurance plan. Currently about 30 percent of Medicare recipients opt in to it, and they love it.
Under Medicare Advantage, insurers compete for seniors’ business. Seniors who opt in pick a plan, to which Medicare pays the monthly fee. Prices vary, and seniors are effectively rewarded for choosing more efficient plans.
Every Medicare Advantage plan has to offer the same benefits as original 1960s Medicare, but can use a more sensible cost-sharing structure, and thus eliminate the need for expensive supplemental coverage, a.k.a. “Medigap.” All Advantage plans offer maximum out-of-pocket expense protection, which Old Medicare never has, and many plans offer additional benefits or lower premiums. Some charge no premium at all. Medicare Advantage, in short, is better and cheaper (and less fraud-prone) than Old Medicare, because it’s more decentralized, competitive, and economically rational.
But it could be even better. Medicare Advantage’s biggest problem is that its monthly rates are tied to Old Medicare’s local fee schedules, which are arbitrarily determined by politicians and bureaucrats who are under enormous lobbying pressure from doctors, hospitals and home health agencies to beef up their respective revenue streams. If we delinked its rates from Old Medicare’s, that lobbying pressure would subside. The participating insurers would be freer, and more incentivized, to offer better benefits and customer service, and drive down prices. Slowly but surely, seniors would migrate into Medicare Advantage, eventually making it the dominant model over Old Medicare.
We could even accelerate that migration by auto-enrolling newly retiring seniors into one of their local plans, rather than into Old Medicare as at present (with a right, of course, to make a different choice).
Voila! Premium-support, without the fuss.
3. Let seniors vote with their feet. Take steps one and two and a virtuous circle will begin. Seniors enrolled in Medicare Advantage will notice they’re enjoying better benefits. Word will get out. Old Medicare will steadily shrink, voluntarily, along with the reach of its bureaucrats, price controls and pages of regulations (all of which are basically irrelevant in Medicare Advantage).
The spending curve will begin to bend downward, as competition restrains costs without bureaucratic rationing. The political heat surrounding Medicare will begin to cool as it becomes less centralized and top-down. There will be less for politicians and bureaucrats to do, and thus less to fight over. And less to demagogue.
GOP leaders have abandoned their futile all or nothing strategy on Medicare, and that’s a good thing. It clears the field for less controversial, incremental reforms.
Those reforms should focus on giving seniors greater freedom to choose. Choice is our best hope for saving Medicare from bankruptcy, without budget cuts or bureaucratic rationing.
Don’t throw granny over the cliff. Give her more choice!