Republicans’ Medicare plan has risks

While Mitt Romney and Paul D. Ryan are campaigning on a promise to “preserve and protect” Medicare, their proposal to revamp the popular government health insurance program would be the plan’s biggest gamble since it was created nearly half a century ago.

The members of the Republican presidential ticket argue that giving seniors vouchers to shop for a private insurance plan would spark competition among health insurers, holding down costs and ensuring the long-term viability of Medicare.

But several previous experiments with privatizing Medicare insurance coverage have ended up raising costs to taxpayers. And on the other side, there is little evidence that moving millions of elderly and disabled patients into commercial health plans will protect their coverage or tame the nation’s skyrocketing healthcare tab.


“Doubling down on private insurers is a risky proposition,” said University of North Carolina health policy professor Jonathan Oberlander, a leading Medicare historian. “Medicare has lost money on private plans for a long time.”

In recent days, the campaign debate has focused on one element of the Medicare puzzle: President Obama’s effort to reduce Medicare spending by about $716 billion over the next decade as part of his healthcare overhaul. Romney, accusing Obama of “raiding” the program, says he would restore that money. Ryan, who once proposed the same cuts, now says he agrees with his running mate.

By restoring the spending that was cut, Romney and Ryan would open a large deficit in Medicare, pushing the program’s main trust fund into the red in just four years, rather than 12 under Obama’s plan. The former Massachusetts governor hasn’t said how he would address that.

The sniping over those cuts, however, obscures bigger questions about what Medicare will look like for the roughly 50 million elderly and disabled Americans who rely on it.

In the face of unsustainable costs, Obama is pursuing a Medicare strategy, enacted in his 2010 healthcare law, that relies heavily on federal administration of the insurance program to force doctors and hospitals to improve their quality and efficiency. That is designed to preserve the program largely in its current form.

Romney, Ryan and other Republicans say that approach won’t work.

“The future of Medicare should be marked by competition, choice, and by innovation, rather than bureaucracy, stagnation and bankruptcy,” Romney said last fall when he unveiled his Medicare plan. “Tomorrow’s seniors should have the freedom to choose what their health coverage looks like.”

If Romney and Ryan are wrong, however, seniors would end up paying much more for medical coverage. The Congressional Budget Office, a nonpartisan federal agency, estimates that Ryan’s latest plan -- which closely parallels Romney’s -- would increase the average cost for a senior entering the program in 2030 by as much as $2,200 a year.

To be sure, there is no guarantee Obama’s strategy will preserve Medicare. Previous efforts to squeeze payments to medical providers have a mixed record. The government’s own actuaries suggest the deep cuts contemplated in the Affordable Care Act could drive some hospitals and doctors out of business.

Under the president’s plan, Medicare’s main trust fund is still projected to begin running in the red in 2024 as baby boomers flood the program and their medical bills outpace the payroll taxes that finance benefits. This year, the trustees overseeing Medicare urged lawmakers to act “as soon as possible” to shore up the program’s finances.

Republicans have long tried to enlist insurance companies to do this, by replacing Medicare’s current structure of standardized benefits and premiums.

In a privatized system, individual insurance companies could offer varied benefits and premiums as they compete to attract seniors.

Seniors, in turn, would use a voucher with a value linked to the cost of available insurance plans. Seniors who want a more expensive plan would have to pay the difference.

Romney and Ryan, while providing little detail about their plan, say they would preserve the current Medicare program as an option -- although the voucher would not necessarily cover the cost of enrolling. They would delay implementation of the plan for 10 years, allowing all Americans now 55 or older to get into the current system.

Critically, many premium support plans, including Ryan’s, limit how quickly the value of the voucher would increase over time. That means that if insurance premiums rise more quickly than the value of the voucher, seniors -- and not the federal government -- would have to pay more. That would ensure Medicare spending remains in check while shifting risk to individual seniors.

The additional options in such a system should be welcome to retirees, said the Heritage Foundation’s Robert A. Moffit, a former Reagan administration healthcare official. “Seniors are making all kinds of choices all the time,” he said. “It’s probably more challenging to find the right doctor or the right specialist.”

It remains unclear whether private insurance companies, which typically have higher administrative costs and pay more to hospitals and other providers, would do better than the current Medicare program at holding down costs.

Over the last decade, costs grew more quickly in the commercial insurance market than they did in Medicare. Between 2006 and 2010, Medicare spending per person increased 4.2% a year, while per capita spending by commercial plans grew 4.5%.

Insurance companies haven’t done much better insuring Medicare beneficiaries.

The federal government for years has given seniors the option to select a commercial insurer to administer benefits through the Medicare Advantage program. Today, about a quarter of Medicare beneficiaries participate in the program.

Some private insurers have been able to reduce costs and better manage care for seniors. But independent assessments of the Medicare Advantage program have found that on average, these private plans are more expensive than traditional Medicare, costing taxpayers 7% more per person, according to the Medicare Payment Advisory Commission.

Since 2006, Medicare has also relied exclusively on private health plans to provide seniors with the Part D prescription drug benefit. That program is often cited as a success because costs have been lower than projected.

It is not clear that private insurance plans deserve the credit, however. Nationwide, spending on pharmaceuticals has slowed dramatically in recent years as cheaper, generic drugs became available and few new blockbusters entered the market.

While commercial health plans may have secured some savings for Medicare, the government Medicaid program for the poor, which negotiates drug prices with manufacturers, saved more than twice as much on top brand-name drugs in 2009, according to the Department of Health and Human Services inspector general.

That suggests the private plans may actually have increased costs to the federal government, said Edwin Park, a former Clinton administration health analyst now at the Center on Budget and Policy Priorities.

“There is just very little in the Part D experience that suggests that private-sector competition will be able to produce huge savings for Medicare without just shifting costs to beneficiaries,” he said.