“Paul Ryan wants to shift healthcare costs from Medicare onto seniors.”
Expect to hear some version of that claim over and over during the next few months. As President Obama said in the speech accusing Mitt Romney and Paul Ryan of “thinly veiled Social Darwnism: “Seniors bear the risk. If the voucher isn’t enough to buy a private plan with the specific doctors and care that you need, that’s too bad.”
This is a common attack on the GOP’s vice-presidential nominee’s plan to modernize Medicare into a premium support plan for future seniors who chose that option.This criticism is based on a 2011 CBO study. But that study is out of date, since it does not analyze the plan Ryan has co-authored with Sen. Ron Wyden, a Democrat from Oregon. And those plans differ in some key ways. Here are two of the most important:
– The value of the premium support payment is determined through competitive bidding, not linked in some arbitrary way to this or that inflation index.
– Unlike the 2011 version, Medicare as a plan option in premium support creates a safety valve if the private plans are unable to rein in costs.
As AEI’s Joe Antos puts it: “Some critics argue that premium support simply shifts the cost of care to seniors without improving the efficiency of health care delivery. That would be true only if there were no room to improve health care efficiency or if plans ignored opportunities to cut costs, increase market share, and improve their bottom lines.”
And here some key points to remember when you hear that cost-shifting talking point:
1. Last year’s analysis is not relevant to this year’s Ryan plan. Last year, the plan assumed that traditional fee-for-service (FFS) Medicare would not be available to starting in 10 years when the financing shifts to premium support. This year, the plan assumes that FFS Medicare will remain an option, competing head-to-head with the private plans. In many markets, FFS will be the low bidder—rural areas, for example, or markets that have a high concentration of providers whose market power makes them near-monopolists. In markets where competition is possible, private plans will be the low bidder. We see this in the bidding data from Medicare Advantage today.
2. The CBO analysis is logically inconsistent. It assumes that Medicare under the ACA will provide full access to services despite reduction in provider payment rates that drop to Medicaid levels—and then continue to drop in perpetuity. (See these charts from the actuaries.)
Medicaid beneficiaries have very limited access to physicians, a great deal of difficulty seeing specialists, and clog hospital emergency rooms which can’t turn them away. In contrast, CBO assumes that under premium support, private plans would have to pay top dollar to maintain access to care. That’s why CBO asserts that beneficiaries would pay thousands more.
3. This view assumes that health providers and plans will not respond to the changed incentive of a relatively fixed set of payments, and will continue to pump up the volume and complexity of services. That’s not reasonable since under premium support, more services just cut into your bottom line.
Moreover, it assumes that consumers will not shift to better plans where they have the option. The only reason seniors appear to be price insensitive in health is the distorted financing of Medicare and Medigap. When they buy anything else, they care about price and they care about what the money buys—because they know it is their money.