The proposed Republican Party platform, which convention delegates will vote on next week, embraces the controversial "premium support" model for Medicare that presumptive presidential nominee Mitt Romney and his running mate, Rep. Paul D. Ryan (R-Wis.), have advocated. In doing so, it puts the idea in terms that are easy for voters to grasp -- and, potentially, for Democrats to attack.
According to Bloomberg's James Rowley, a draft of the platform states that Medicare should “change from an unsustainable defined-benefit entitlement model” to the “defined contribution model.” Anyone with a retirement plan will immediately recognize the difference: pensions offer a "defined benefit," while 401(k) plans only a "defined contribution." The former assures the recipient that a specific level of benefits in the future, regardless of how the economy fares between now and then. The latter assures the recipient of, well, nothing.
Put another way, in the defined-benefit world of Medicare today, the federal government shoulders the risk that costs will rise faster than Medicare tax revenue -- which they have, decidedly. In the defined-contribution world of the GOP Medicare overhaul, retirees and the disabled will be responsible for any gap between the government's contribution (that is, the amount of premium support Washington provides) and the cost of coverage.
Supporters of the plan argue that ending the blank-checkbook approach to Medicare is essential to reining in the growth of costs. Under this way of thinking, requiring Medicare and private insurers to compete for premium dollars, and pegging they supply of those dollars to the second-lowest premiums in the market, will force the industry to deliver care more efficiently.
But what happens if those efficiencies don't emerge, and costs surge ahead of the federal subsidy? That's a huge question about Romney's proposal and Ryan's version (which the House passed as part of its Republican-penned budget resolution for fiscal 2013), and it invites unflattering comparisons to the change in corporate retirement plans. The shift from pensions to 401(k)s leaves workers at the mercy of Wall Street; would the shift from defined benefits to defined contributions in Medicare leave seniors and the disabled at the mercy of drug and device makers, hospitals and high-priced specialists?
One can only imagine how this would look in a commercial for President Obama's campaign, which has already run ads saying that Ryan's "voucher plan" could raise future retirees' Medicare costs by more than $6,000 a year. That figure actually refers to a previous version of Ryan's proposal, a fact the commercial fails to mention.
The problem for Obama is that the 2010 healthcare reform law he championed clamps a lid on Medicare dollars too. And although it continues to guarantee benefits for Medicare recipients, it requires a new panel of experts -- the Independent Payment Advisory Board -- to propose changes in other aspects of the program to keep costs from growing faster than the law allows. Congress has to enact those changes or come up with an alternative that saves an equal amount of money.
The law doesn't allow the board to eliminate benefits, ration care, raise out-of-pocket costs or reduce eligibility, so the board is expected to focus its efforts on reducing payments to doctors (and, eventually, other providers) and increasing efficiencies. Critics warn that the effect would be to drive providers out of Medicare, making it harder for beneficiaries to obtain treatment.
Another problem for Obama is that his latest budget proposal called for the same limit on Medicare growth as Ryan would impose. Still, there's another, crucial difference between Obama's approach and the GOP's: Romney and Ryan want to repeal the 2010 law, which includes a variety of efforts to slow the growth of Medicare costs by reducing providers' incentive to run up medical bills, promoting wellness and improving the quality of care.
Several prominent Democrats have backed the idea of shifting Medicare to a premium-support system, including Alice Rivlin, a Democrat who was budget director for President Clinton. But Rivlin, who proposed a bill to that effect last year with former Senate Budget Committee Chairman Pete Domenici (R-N.M.), said her plan made clear what would happen if costs grew faster than the premium support.
"We would have a means-tested premium," she said. "Upper-income seniors would have to pay more, and lower-income seniors would be protected."
Rivlin also said, however, that the plan she drew up with Domenici counted on the cost-saving reforms in the 2010 law to prevent that sort of means-testing from having to be invoked. Sen. Ron Wyden (D-Ore.), who drafted a premium-support plan with Ryan, was also relying on the law to change the trajectory of Medicare costs. Wyden has made it clear that he doesn't support Ryan's proposal to make the shift while also repealing "Obamacare."