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Private Plans Under Ryan Budget Plan Would Cost More Than Current Medicare

By Rebecca Adams, CQ HealthBeat Associate Editor

April 6, 2011 -- When House Budget Chairman Paul D. Ryan unveiled his budget proposal, he said it fulfills a "moral imperative" to lower Medicare-related costs. But it would actually drive up overall health expenses by requiring people to get care through private plans, which cost more than the current system, said the Congressional Budget Office. Seniors would essentially pick up the extra costs.

The House Budget Committee was expected to approve the fiscal 2012 budget resolution that Ryan, a Wisconsin Republican, introduced the day before. As the committee debated the plan, policy experts and Democratic critics took a closer look at its impact on seniors and people with disabilities.

Ryan has proposed converting the current fee-for-service system—in which patients go to any doctor that takes Medicare—to one in which beneficiaries would get a capped annual subsidy to help them buy private insurance. Democrats say that the proposed system, which is known as a "premium support" model, is akin to providing vouchers to elderly and disabled people for private plans. Ryan says that the annual allotments are not vouchers in part because people would get higher amounts if they are sick.

Because seniors would pay higher costs under the proposed system, the federal government's share of Medicare spending would be the same in 2022 under Ryan's plan as it would under current law. The nonpartisan CBO analysis said that out-of-pocket costs for Medicare beneficiaries would more than double in 2022 when compared with the current system.

The average costs for Medicare enrollees would rise from $5,538 in 2022 under current law projections to $12,513 that year under Ryan's plan, said Democrats on the House Energy and Commerce Committee.

"All of that extra spending by seniors and people with disabilities would go to private plans," said House Energy and Commerce top Democrat Henry A. Waxman of California.

"These vouchers won't cover what Medicare covers," Waxman said in an interview.

Ryan's proposal also would increase spending each year under Medicare at a lower inflation rate than under the current system starting in 2022, so over time, the federal government's share of expenses would decline. The CBO said that by 2030, the government would pay about 32 percent of costs under Ryan's proposal, compared with 35 percent of costs under current law—while the costs for seniors and people with disabilities would nearly triple.

"A private health insurance plan covering the standardized benefit would, CBO estimates, be more expensive currently than traditional Medicare," said the CBO explanation. "Both administrative costs (including profits) and payment rates to providers are higher for private plans than for Medicare."

The CBO said that "those higher costs would be offset partly but not fully" by lower spending by patients in private plans because insurers have tighter oversight of patients' medical utilization of services than traditional Medicare, and because plans sometimes prevent seniors from buying Medicare supplemental plans. If seniors don't have supplemental Medigap coverage, they might be less likely to get some medical services.

The gap between costs for the private plan coverage and the current fee-for-system Medicare system would grow over time. In 2022, the costs for the traditional Medicare program would be less than two-thirds of those under Ryan's new private plan model, the CBO found. By 2030, the fee-for-service program would be 60 percent of the costs under the new program. Seniors and people with disabilities would pay significantly more in cost-sharing such as coinsurance or premiums.

A spokesman for Ryan did not return calls asking why the fiscally conservative congressman would choose to create a new system that costs more than the current one.

To be sure, the CBO analysis presumed that current law would continue without any changes to Congress—a scenario that may be unrealistic. That would mean that Medicare payments to physicians would fall below current rates and Medicare payments to other providers would grow more slowly than the annual increase in their costs.

The analysts also provided a second scenario that assumes that provider rates would go up more than under current law. Under that estimate, the costs for the fee-for-service Medicare program would still be considerably lower than the expenses for the private plans in Ryan's proposal—about 72 percent of the cost for private plans in 2022 and about 71 percent of private plan costs in 2030.

In the Budget Committee markup, Democrats offered a sense of Congress amendment that Congress should reject legislation that shifts health care costs onto seniors, servicemembers and veterans while maintaining tax cuts for high-income taxpayers. It would have changed the committee report to say that health care programs for seniors, veterans and servicemembers and their families should not be eliminated or replaced with vouchers to buy private insurance or set spending caps for these programs.

The amendment, which was offered by New York Democrat Paul Tonko, was voted down 16-22. The committee was expected to continue debating the resolution late into the night.

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