• Would benefits erode under voucherized Medicare? No!

    If Medicare is turned into a voucher program one way to save big bucks is to let its benefits erode. But that’s dodging an awful lot. What do we mean by “let its benefits erode”? There’s no “letting” with Medicare. Every single millimeter of movement in the program is fought tooth and nail by armies of advocates for providers, insurers, and beneficiaries. Benefits will not simply be “let” to erode.

    If there’s to be any change in benefits, it will have to be, at a minimum, justified on air-tight scientific grounds. As in, “No, we won’t pay for XYZ anymore because 15 clinical trials all showed that it doesn’t do anybody any good.” Even then, it will be darn hard to get the XYZ lobby to back off, to say nothing of the political party in the minority who will suddenly find a reason to defend XYZ as “Medicare as we know it” or to attack the party of anti-XYZ as secret lovers of rationing and death panels.

    So, what if we tied Medicare to the rest of the health insurance system? What if everyone was in the same voucherized program? Call it the expansion of the ACA to the Medicare population or call it the expansion of Medicare to the rest of us. Either way, if the program is voucherized, should we worry about benefits erosion?

    No! We should not. It only makes it less likely, not more so, that benefits would erode. With the entire population in the same boat, the pressure to keep the goodies flowing would be immense. If anything, there is a greater risk that we’ll explode the budget, not tighten it.

    So, I’m really not that worried about benefits erosion. It doesn’t seem like a good reason to oppose voucherizing Medicare. Now, I do think there are good reasons to not voucherize Medicare in certain ways. I wrote all about it earlier. But I’m not seeing an erosion angle. Am I missing something?

    • If you went back two decades and said that some states would dismantle collective bargaining for public employees, people would have called you crazy. They would have argued that public employee unions were strong and powerful advocates at state capitols across the country. And that they had powerful allies in private sector unions and in the Democratic Party, not to mention some support from the GOP.

      Or, to take what may be a better analogy- Social Security. Who would have guessed that we would come to actually contemplate benefit reductions, despite the extremely powerful AARP and their millions of voters.

      (Years of work in politics taught me to always imagine a slew of outcomes that seem practically impossible.)

      With all that said, I do not categorically oppose voucherizing Medicare. I am merely skeptical.

      • @Justin Anderson – Your arguments are creative. I mean that as a compliment. But the history of politics in Medicare is pretty clear, as is the experience of Medicare Advantage. Benefits erosion isn’t possible under Medicare Advantage, but it isn’t a binding constraint. Through the political process they’ve gone way above the defined benefit by securing very generous payments. I made that point last August, after Krugman did. Ezra Klein seemed to think it was reasonable.

        We could all be wrong! But at least it is not a crazy idea that the Medicare Advantage experience would generalize to other voucher programs. What would keep voucher levels growing below health care costs? I don’t believe politicians will let them do that any more than they stick with the SGR.

        Incidentally, the competitive bidding approach I’ve written about would not have the eroding benefits problem. It’s a different kind of voucherization. The defined benefit stays in place, as a focal point for bids. The only difference is the insurance delivery. Whichever way is cheaper wins. And what wins in one region need not be the same as another.

    • I think you are off on this. The idea is that Medicare will give you a fixed amount of money, and that amount will remain fixed as healthcare costs increase, which will reduce the rate of healthcare cost increase, because people will be paying for their own care.

      As you said, there are organizations that will fight tooth-and-nail to prevent erosion of Medicare, but I think they will not fight as hard for an annual expansion of 7% (the rate of healthcare cost growth), which is what would be needed for their benefits to keep pace with healthcare cost growth.

    • Perhaps we can all agree that creating better incentives against over-consumption of finite health care resources is a good thing. But we may disagree as to how much that will happen under a voucherized Medicare program and also what, and/or how large, the unintended consequences may be. I would just like for us to be cautious, and cognizant of the possibility that we could end up with a system that not only disincentivizes unnecessary care, but also prevents needed care. (Yes, I know that sounds Utopian.)

    • I find it difficult to believe the elderly will not react strongly to rising costs. Since they vote, unlike the poor, legislators will respond. This looks easier for legislators to sabotage than IPAB decisions from my POV, but that is my own prejudice.


    • Dr. Frakt, you’re not thinking like a physicist. Please consider this account:

      Fundamental Law of Actuarial Science:

      Premiums = Present Value of Future Benefits + Admin.

      (A good physicist always leads with an equation).

      Now, for a fixed package of benefits, the first term on the right is also fixed. All that can change is the Admin. term. Simple enough. And this is independent of how the premiums get paid.

      I think this is the basis of your assertion that benefits will not erode; that the benefit package is not necessarily dependent on who pays the premiums.

      But… when I saw the title, I immediately thought of the Ryan plan. Which will reduce the relative size of the voucher over time. Which will reduce the amount available for premiums. Which will induce pressure for a reduced benefit option, as has happened with employer sponsored health care plans.

      So, yes, voucherizing Medicare need not reduce the benefits, but I don’t see any reason to think it wouldn’t.

      • @Phil in Brighton – Please read the other comments. In particular, I summarized an argument. If a private-plan based program were to save money, we’d see it happening with Medicare Advantage. In that program benefits have — in general — gone up, not down. (The ACA may reverse that, but already there has been some backpedaling on the rates, about which I’ve written.)

        Bottom line: either Ryan’s plan saves money and benefits erode, which I don’t believe is sustainable or likely. Or, Ryan’s plan does not save money and benefits don’t erode. Either way is not so good. But, add competitive bidding with a public option and, as I’ve described, these issues are addressed.