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Ryan Plan Seemingly Dead, but Premium Support Lives On

By John Reichard, CQ HealthBeat Editor

May 20, 2011 -- House Budget Committee Chairman Paul D. Ryan's Medicare overhaul plan is almost surely dead. But its core concept—having seniors select their Medicare coverage from a menu of competing plans and giving them a set payment to help defray premium costs—surely is not.

An overhaul based on what's called premium support would end Medicare as we know it, and that makes it too risky for lawmakers to attempt before the 2012 elections. But the idea is hardly novel. It's how Medicare administers its prescription drug benefit, and it's the way insurance exchanges will help people without coverage pay their premiums under the health overhaul law (PL 111-148, PL 111-152).

Some leading voices in health policy assert the Ryan plan can be reworked to give seniors more help to cover the cost of premiums, keep traditional Medicare as an option and, improbable as it may seem, win Democratic support.

The next time Congress considers revamping the program in a less politically charged environment—perhaps in 2013—premium support could be the leading option touted by health policy professionals in urging lawmakers to act.

"Ryan's critics correctly argue that his version of premium support, passed by House Republicans, would ultimately end traditional Medicare and likely cause many seniors to pay considerably more for health care than the current system," former Congressional Budget Office (CBO) Director Alice Rivlin blogged May 16 in the Huffington Post.

But Rivlin, a Democrat, said "it would be a serious mistake for health care reformers to demonize the concept of premium support without recognizing that a better constructed version of the same idea could attract support from many Democrats."

How It Would Work

Premium support aims to save money in two ways: through competition forcing providers to hold down the price of care and deliver it more efficiently, and through controls setting how much financial help seniors get to pay premiums. Limiting subsidies will prod Medicare enrollees to find efficient plans, boosters say.

The Ryan plan would hike Medicare premium subsidies each year by no more than the increase in the Consumer Price Index—typically well below annual inflation for medical costs. Over time, the plan would reduce the growth in Medicare spending. But a CBO analysis projects that under Ryan's plan, in 2030 Medicare enrollees would pay more than two-thirds of the cost of their Medicare-covered services rather than about a quarter of the cost if the program stays as is.

House Ways and Means Committee Chairman Dave Camp, R-Mich., says he has no plans to move Ryan's proposal.

That hasn't quieted talk in health policy circles about how to make premium support work. The topic was on the minds of influential analysts who gathered May 16 at the American Enterprise Institute to dissect the devastating annual trustees' report on Medicare's fiscal outlook. The report estimated that Medicare's hospital trust fund would go broke by 2024.

University of Minnesota professor Roger Feldman proposed a premium support structure in which all Medicare plans would bid on a standard benefit package. Private plans and traditional fee-for-service Medicare would be included. "The government would take the lowest bid from a qualified plan in each market area, and that would become the level of the government's premium support," Feldman said. "Plans could offer more benefits if they wanted for an extra beneficiary premium."

In contrast, Ryan's plan would offer only private insurance. "We would retain fee-for-service Medicare," Feldman said. "First of all, private plans won't serve all regions of the country, unless, I would say, they are bribed to do so. It was only a few years ago that private plans became available in all counties of the United States, and they remain so only because they're paid up to 40 percent more than fee-for-service Medicare in some areas. Second, fee-for-service is less costly than private plans in parts of the country, because it has certain advantages, including the government's power to set prices." Finally, Feldman added, some people like fee-for-service Medicare, and would pay extra for it.

To be sure, premium support has plenty of skeptics in the policy world, including among its former advocates. Henry J. Aaron of the Brookings Institution, who urged a premium support overhaul of Medicare in the 1990s, says he now doubts that regulations can be established to help seniors easily compare plans. He also questions whether seniors could make good plan choices. Aaron says the Independent Payment Advisory Board, established by the health law to control Medicare spending, should be tried first.

But Rivlin, Feldman and former Medicare administrator Gail Wilensky say premium support can work by retooling the Ryan plan with bigger annual increases in premium subsidies. They also cite the benefit of retaining traditional Medicare as an option. Feldman said his plan would shave 8 percent off annual Medicare spending, and twice that if current "Medigap" coverage picking up out-of-pocket Medicare costs was no longer sold.

With numbers like that, members of Congress may not find premium support quite so threatening—after the next election.

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