The Ryan Plan for Medicare is Bound to Fail

16Oct12

In less than a month, it is possible that the Vice President-elect will be a man who has proposed replacing traditional Medicare with a premium support program (often referred to as vouchers). Congressman Ryan claims that this move is necessary in order to stabilize Medicare expenditures and extend the program’s life. What people don’t realize is that Medicare premium support has already been tried, and it has failed.

Most of the criticism of Congressman Ryan’s plans have focused on his original plan and the gap between the value of the premium support (linked to the Consumer Price Index) and the health insurance price inflation. Because of the negative reaction to his original Medicare plan, Congressman Ryan modified it (with the input of Congressman Ron Wyden), to continue a single-payer program (essentially continuing traditional Medicare), and changing the premium support from a fixed sum (linked to the CPI) to the value of the second-lowest priced plan available.

So, Congressman Ryan’s current plan (the Ryan-Wyden plan) is to have traditional Medicare accompanying program support for private health insurance. That sounds remarkably like what we have right now: traditional Medicare accompanying Medicare Advantage. The problem is that despite Medicare Advantage having been created to control costs by introducing competition, it has entirely failed to do so. In fact, Medicare Advantage plans take more money than traditional Medicare (it is from this additional money that Obamacare would take the bulk its $716 billion in savings). So, the difference between the current situation and the Ryan-Wyden plan would be to have the Medicare Advantage gap filled by seniors, rather than the government (along with a phased two-year increase of the eligibility age).

So, what are the possible results of implementing either plan? Let’s look first at the original plan:

  1. Seniors are face rising health insurance costs as the gap widens between premiums and their support, and poverty among the elderly increases. (Not a likely result, considering the strength of the senior citizens’ lobby.)
  2. Seniors are face rising health insurance costs as the gap widens between premiums and their support, and (under pressure from the AARP) Congress restores traditional Medicare (on its own, or paired with a premium support program).
  3. Seniors are face rising health insurance costs as the gap widens between premiums and their support, and (under pressure from the AARP) Congress fills the gap as it does now with Medicare Advantage, destabilizing Medicare.

Now for the possible results of implementing the Ryan-Wyden plan:

  1. Seniors stick with traditional Medicare — negligible impact and negligible savings.
  2. Seniors flock to private insurers, leading to a rising gap between premiums and their support, leading to one of the three possibilities above.

Medicare is far from a perfect program. The official Sustainable Growth Rate reimburses doctors at less than the cost for the doctor to provide the service (so the SGR is maintained as a budgetary fiction, while Congress implements the annual ‘one-time’ ‘Doc Fix’), for example. However, when we talk about changing Medicare from the traditional government-run program to premium support for private insurance, we are not talking about a blind leap of faith. We know what will happen. Introducing competition to the lowest-overhead health insurance program will not lead to lower prices. We’ve seen that with Medicare Advantage. The only possible results are destabilizing Medicare or bankrupting seniors. We need a fix that will do neither — perhaps removing the cap on salaries subject to FICA taxes, or making capital gains subject to FICA taxes.

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