• Republican platform goes there–would make Medicare a defined-contribution voucher program

    The profusion of Ryan, Ryan-Wyden, House Republican, and Romney proposals on Medicare sparks legitimate debate regarding whether it’s fair to say that Republicans would “end Medicare as we know it.” Similar debate has raged over whether critics are right to say that Republicans would convert Medicare into a voucher program, and what that term really means given the variety of approaches to premium support. As the details have shifted, I’ve gone back and forth on these issues myself.

    The Republican draft platform (h/t Politico) is therefore notable for its clarity. Regarding Medicare and Medicaid, it says: “The first step is to move the two programs away from their current unsustainable defined-benefit entitlement model to a fiscally sound defined-contribution model.”*

    This is a textbook definition of a voucher program.

    One can debate whether the Republican platform accurately reflects the views of the Republican nominee, but the wording here is unambiguous. Over time, it really would  change Medicare’s basic goals and structure to limit the federal government’s financial exposure. The platform raises an obvious question, too: Who would bear the burdens and risks if the costs of medical care rise faster than the value of the vouchers?

    (*The full paragraph is reproduced below.)

    The first step is to move the two programs away from their current unsustainable defined-benefit entitlement model to a fiscally sound defined-contribution model This is the only way to limit costs and restore consumer choice for patients and introduce competition: for in healthcare, as in any other sector of the economy, genuine competition is the best guarantee of better care at lower cost. It is also the best guard against the fraud and abuse that have plagued Medicare in its isolation from free market forces, which in turn costs the taxpayers billions of dollars every year. We can do this without making any changes for those 55 and older. While retaining the option of traditional Medicare in competition with private plans, we call for a transition to a premium-support model for Medicare, with an income-adjusted contribution toward a health plan of the enrollee’s choice. This model will include private health insurance plans that provide catastrophic protection, to ensure the continuation of doctor-patient relationships. Without disadvantaging retirees or those nearing retirement, the age eligibility of Medicare must be made more realistic in terms of today’s longer life span.

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    • In health care there is a certain point where competition doesn’t really work. If you are shot by a bank robber and rushed to the hospital, you can’t ask the ambulance driver to take you to the more affordable hospital across town. Maybe for some procedures you can pick and choose, but medical care isn’t like buying doughnuts.
      It is a good question however if Ryan’s plan is used. Who will bear these costs? If bills for emergencies go unpaid, will the hospital absorb the costs and pass it on to other paying customers by increasing prices?

      • Emergency care is a bad example of the reasons for high medical costs because the overwhelming amount of medical spending is on non-emergency care.

        In non-emergency care the procedures that go down in cost are exactly those that are competitively priced because insurance does not cover them, i.e. cosmetic surgery.

        The argument that competition does not provide significant relief for health care costs is completely false.

        • “In non-emergency care the procedures that go down in cost are exactly those that are competitively priced because insurance does not cover them, i.e. cosmetic surgery.”

          The costs also go down because the procedures are purely optional. Anyone can walk away from cosmetic surgery at no cost to their pocket or their life. You can’t say the same about chemotherapy.

    • I think people miss the fact that insurance companies really are simply administrators. They collect premiums and use them to pay providers, taking a cut to cover their costs and profits. If competition were going to improve quality and reduce costs (not at all certain, as Austin and Aaron have written), it could only do so if we focused on competition among providers.

      There is nothing that I can see in the republican proposals that would do anything at all to increase competition among providers. There isn’t much in the ACA either, though I guess potentially ACOs could influence the amount of provider competition, at least in some areas.

      • In theory anyway, the concept behind vouchers is that it will be harder for Medicare plans to increase premiums if millions of voucher-holders are paying attention to the rates they get charged. The insurance plans would have more incentive to negotiate harder with providers on behalf of their members, and the plans that do a better job will attract more members. The providers, in turn, would have more pressure to compete for spots on plan rosters. That’s their theory anyway, so Republicans do believe they are addressing provider competition. Whether this is workable or not is another question entirely.

    • Note the reference to “private health insurance plans that provide catastrophic protection.” Does that imply that traditional Medicare won’t have the same ability as private plans to modify its benefit package? And what about rationalizing the role of Medicate supplements? Or does it mean that some private plans will offer only catastrophic protection? Leaves most of Austin’s 17 checklist items unspecified, or only partly so. Note also the final sentence on raising the age of eligibility.

    • “This model will include private health insurance plans that provide catastrophic protection…. ”

      That’s a frightening thought, given Ryan’s latest proposal that seniors will have a range of options, including Medicare as we know it – but the voucher’s value will be based on the one or two least expensive plans.

      If there are one or two catastrophic only plans, my own guess is that the voucher will be worth even less than it was under Ryan’s original plan. It certainly won’t pay the the costs of plans that include primary and recurring treatments of a less than catastrophic nature – like “Medicare as we know it.”

    • In health care, competition dilutes purchasing power. A federal agency representing 30 or 40 million people has much more leverage to negotiate lower rates than a small plan representing 300,000 people. Under the private competition model not only is a portion of the taxpayers health care diollars skimmed off to cover the insurers administrative costs, but providers will be able to demand and obtain higher reimbursement rates. Just how this saves the taxpayers mony escapes me.

    • “Who would bear the burdens and risks if the costs of medical care rise faster than the value of the vouchers?”

      If?

      Or when?

    • In healthcare, it seems the easiest way for insurers to compete is by getting less expensive beneficiaries than their competitors.

      (Here I should acknowledge that I’m not an economist and I do not know how to confirm what I just said.)

      Theoretically, perhaps it is possible to restrain such harmful competition through regulation. Virtuous competition would be over services, including negotiation services on behalf of beficiaries, keeping down costs. Austin’s checklist might be seen as a plan for virtuous competion.

      But isn’t it our experience that it is very difficult to coax such virtuous competion from insurers? Harmful competion seems easier. Then insurers are able to make money, while portraying themselves as serving consumer interests. Regulators don’t end up looking nasty.

      Maybe when some people talk about competion, they forget about profit, the stock market, and manager salaries and focus only on negotiations with care providers. That leaves a lot out.

      A different topic:

      A few newspaper stories about healthcare in Louisiana since Governor Jindal refused the Medicaid expansion. The public hospital system is threatened with closures.

      The head of the public hospital system fired.

      Public hospitals seek private partners:

      Cuts: http://blogs.theadvocate.com/politicsblog/2012/07/27/lsu-hospital-cuts-fall-mostly-on-facilities-in-monroe-pineville-and-shreveport