• The Wyden-Ryan Medicare plan moves the ball, but which way?

    As noted in today’s Reflex, Senator Ron Wyden and Representative Paul Ryan have jointly proposed a reform of Medicare that involves competition and private plans but differs from Rep. Ryan’s prior concept; it does not phase out traditional Medicare. The two legislators explain their plan in a Wall Street Journal op-ed today and their white paper with more details is available online (pdf). Below is a bit about their plan and the politics. Many questions remain.

    The Plan

    The following are some of the concepts proposed by Sen. Wyden and Rep. Ryan for a reformed Medicare. Their plan also includes reforms for workers of small businesses, which I will not discuss (much) in this post.

    1. No changes before 2022.
    2. Anyone age 55 and older today would never have to participate in the new plan.
    3. Private Medicare plans would compete with each other and with traditional Medicare in an exchange. Private plans must offer the actuarial equivalent of what is available from traditional Medicare.
    4. Plan premiums would be community rated. Plans could not reject a beneficiary from enrolling for any reason.
    5. The premium support level would be determined by the cost of the second cheapest plan or traditional Medicare, whichever is lower. Payments would be risk adjusted and geographically rated.
    6. If a beneficiary chose a costlier plan, (s)he’d pay the difference out of pocket. If (s)he chose a cheaper one, (s)he’d receive the difference in cash.
    7. Low-income beneficiaries would receive additional assistance, as they do today.
    8. Medicare growth will be capped at a GDP+1% growth rate. Cost growth above the cap will be brought in line by reducing “support for the sector most responsible for cost growth, including providers.”
    9. The white paper says that the Parts A and B deductibles of traditional Medicare should be combined and a catastrophic cap should be included.

    A few comments about these ideas: First, to many readers this should look familiar. It’s similar to the Domenici-Rivlin proposal and a form of competitive bidding, about which I’ve written a great deal. My ongoing premium support series includes similar ideas and critiques of them. With the exception of including a public option (traditional Medicare), the scheme is similar to the ACA exchanges.

    Second, it is not clear whether under this plan traditional Medicare can avail itself of all the payment reforms in the ACA, including ACOs, bundled payments, the IPAB, and the like. Moreover, it’s not clear how the provisions for workers (see white paper) mesh with the ACA. This is not some fine point. It’s absolutely essential that Sen. Wyden and Rep. Ryan be clear and specific about their ambitions for the ACA with respect to Medicare and the non-elderly. Their proposal cannot be fully evaluated without those specifics.

    Some additional points: Regarding #2 in the above list, I did not notice any discussion in the white paper about how exactly premiums for those 55 and older will be set. There are reasons to be concerned about #3’s actuarial equivalent standard, in contrast to requiring plans to offer a standard, common benefit. Briefly, the looser the standards, the more easily plans can compete on selection. About #5, it is not clear what “geographically rated” means. Will plans compete within local markets or will national bids be adjusted to reflect local costs? The former is more consistent with a market-based reform. The later inserts some administrative adjustments that will be prone to political gaming.

    Idea #6 is not an innovation since Medicare Advantage plans can already rebate the Part B premium, something the white paper fails to recognize. This is another aspect of today’s policy/political debate that is frustrating (to me at least). Many are not being completely forthcoming in how their ideas differ from current law. After all, we have a form of premium support with competition today. In the above list, only #5 offers something definitive and unambiguously new to Medicare.

    The ACA already constrains Medicare growth to a  GDP+1% rate, so #8 guarantees that the plan would be scored by CBO as no more costly than current law. Since the CBO is unable to score the dynamic effects of competitive bidding (but can score the static savings (pdf)), it probably would attribute some savings to the Wyden-Ryan plan. But it would be one-time (static), not curve bending (dynamic). Also, it isn’t clear to me how the spreading of pain among providers would be operationalized if costs exceed the cap. Item #9 is a noncommittal.

    The Politics

    As with any Medicare reform proposal, expect this one to generate substantial political debate. That’s appropriate, considering the stakes for the program and those who depend on it, as well as the competing claims of cost control supremacy by private plans or traditional Medicare. One key area of debate should be the extent to which traditional Medicare needs protection and preservation. It has the potential for large influence in dimensions of cost control in which private plans don’t typically lead. A private-side alternative has not been articulated. Related, why should a public option be universally available for the over-65 population but not the under-65 one? (See Aaron’s post on this.)

    Despite the questions, some things are clear. Rep. Ryan has moved leftward from his proposal last spring that would have eliminated traditional Medicare as an option for new beneficiaries beginning in 2022. Sen. Wyden has moved rightward from the standard Democratic position of preservation of Medicare as we know it since, in my view, a premium support proposal of the type offered by the legislators invites some risk of erosion of that arm of the program. I’m not suggesting that is Sen. Wyden’s aim since people can differ in their opinions on what premium support will do. I also don’t know the full history of his views of Medicare. Earlier today, Jon Cohn quoted the senator as saying,

    “I start with the proposition that, for millions of seniors and soon-to-be seniors, Medicare is the most important fiber in the social safety net. [...] I would never do anything to shred it, or weaken it, or harm it in any way.”

    Thus, I presume Sen. Wyden aims to preserve the program, including traditional Medicare. (The senator co-founded the Gray Panthers, which is a pro-single payer organization.)

    Together, along with the Domenici-Rivlin Debt Reduction Task Force, Sen. Wyden and Rep. Ryan further the image that a proposal of this type is bipartisan, that it’s the natural, centrist compromise. Is it? A lot depends on details left unspecified. Will the concept survive the political gauntlet long enough for it to be fleshed out? At this point, we can’t know if a competitive bidding-based premium support program that includes traditional Medicare among the options is in our policy future. But that it could be just became a bit more politically feasible.

    UPDATE: I revised my characterization of what CBO can and cannot score with respect to competitive bidding.

    AF

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    • On your #5 comment above, can you clarify?

      Your implying that national bids would undergo contortions, subject to congressional meddling via skewed formulas, correct?

      Local market oversight, I suppose, because its so downstream might get lax as well. We are talking hundreds of markets I would think, at least using HRRs as a theoretical reference. Might that schema also have an equally high risk of unsavory conduct?

      Do we regionalize Medicare? Regional boards?

      • Medicare Advantage plans bid locally today. I’m not aware of that as a key flaw.

        • But the bidding proposed for future is not what we have today. The benchmark is set by fiat, with a national formula that tweaks for local factors. Some of those tweaks, if I understand correctly, are congressionally driven, and are based as much in politics as policy. I presume this is the behavior we wish to purge.

          • Correct. But how does aggregating bids nationally help? Local bids informing local support would completely remove administrative pricing.

            • It doesnt. But the same malignant behaviors in congressional halls are present in state houses: Local bids informing local support “with local quid pro quo” a la Tammany Hall. Exaggeration of course, but the point is, its not that one structure is best, but politics being politics, the same pathology will recur, only in smaller locales.

              Just looking at the redistricting messes–nation wide–as well as a swath of dysfunctional state houses and infirmed DOIs is a good indication CMS would have their policing power hands full.

              Its not that one is superior, but one is sorta, kinda, maybe might be a little better.

            • Disagree. Health costs vary widely. We may wish to address that, but not in a way that could harm beneficiaries or line the pockets of politicians.