“Robin Hood in reverse, on steroids”–that’s how Robert Greenstein, President of the Center on Budget Policy and Priorities (CBPP), has described vice-presidential candidate Paul Ryan’s blueprint for the 2013 budget: It could likely produce the largest redistribution of income from the bottom to the top in modern U.S. history.”
I quoted Greenstein in April, in a post that originally appeared on HealthInsurance.org. There, I explained that Ryan’s budget would shift Medicare costs to seniors and slash Medicaid, while simultaneously offering tax breaks for Americans perched on the top of a our income ladder.
Under the newest version of the Ryan plan, Washington would give seniors a voucher equal to the cost of the second-cheapest private-sector Medicare plan in their region. In theory, this gives seniors “choice” — the opportunity to pick a Medicare policy that best suits their needs, and their pocketbook.
If they don’t want to buy a plan from a for-profit insurer, they could, if they wish, use the voucher to buy traditional government-sponsored Medicare–though if it costs more than that second-cheapest private plan in their area, they will have to make up the difference.
Romney and Ryan are convinced that the private sector is always more efficient than government. Thus, for-profit insurers will be bound to offer better care at a lower price. Their faith is remarkable, given that past attempts to privatize Medicare (Medicare + Choice and Medicare Advantage) have largely failed on both counts.
In the case of Medicare + Choice, most insurers were not able to turn a profit large enough to satisfy Wall Street, and so many companies bailed out of the program, leaving seniors in the lurch. (I write about this in Money-Driven Medicine.) Following that defeat, Republicans in Congress pushed through legislation creating Medicare Advantage, another private insurance program for seniors. This time around, Congress agreed to pay for-profit insurers 12 percent more per beneficiary than regular Medicare would spend to cover the same people– just to make sure that their profit margins would be fat enough to please investors.
In order to attract business, Medicare Advantage plans sometimes offered seniors “sweeteners” not available in traditional Medicare such as discounts on eye-glass frames or gym memberships. But there was little evidence that when it came to improving health, the extras were worth the extra 12%. And there was no evidence that private sector insurers were able to deliver better care for less. (Under the Affordable Care Act, Congress has trimmed the over-payment to Advantage insurers. Only those that can show that they are improving the health of their customers will continue to receive a bonus.)
Meanwhile, insurers used extras like gym memberships to “cherry-pick” younger, healthier patients. By contrast a cancer patient would be likely to stick with traditional Medicare because it covers all providers. If he chose a private plan he would have to pick an oncologist in the insurer’s network. Thus, over time, traditional Medicare was likely wind up with a smaller pool of sicker seniors – and higher costs. http://www.publicintegrity.org/2012/04/09/8621/fact-check-president-obama-romney-both-distort-facts
Now, Ryan is offering us a third way to privatize Medicare: rather than asking tax-payers to pay insurers 12% more than government-run Medicare spends on seniors, let seniors make up any extra costs themselves. If they choose a plan that costs more than the voucher allows, that’s their “choice.” They will be “free to choose” whatever they can afford.
Under the Ryan proposal, private insurers would no doubt once again do their best to design their plans to attract the healthiest patients. Of course, they’ll also have oncologists in their networks, but they might not be the best-known, most expensive cancer specialists in their area. Patients who are seriously ill will remain in the traditional Medicare program. Its costs will climb and seniors who want to use their voucher to buy tradtiional Medicare will have to dig into their own pockets to make up the difference. Ultimately, the program could easily become too expensive and simply wither away.
This is why I call Ryan’s proposal a “disaster “both for Medicare, and for older Americans. If you’re not yet convinced, let me urge you to read the compelling argument that former OMB director Peter Orszag made on Booomberg.com yesterday. http://www.bloomberg.com/news/2012-09-18/ryan-s-proposal-would-shrink-medicare-s-doctor-pool.html If Ryan’s plan were implemented, Orszag observes, many seniors might well find that their doctors would no longer take Medicare.
Below, an excerpt from Orszag’s post.
Ryan’s Proposal Would Shrink Medicare’s Doctor Pool
By Peter Orszag
Sep 18, 2012
The federal budget proposed by Representative Paul Ryan, the Republican vice-presidential nominee, extols the benefits of “promoting true choice” for Medicare beneficiaries. In truth, though, the Ryan plan would substantially reduce choice for many people on Medicare — by cutting them off from their current doctors.
Doctors see Medicare patients, despite the relatively low payments they receive for doing so, partly because Medicare represents such a large share of the health-care market. If a substantial number of beneficiaries moved out of Medicare and into private plans, as Ryan proposes, doctors would have much less incentive to see Medicare patients. And the elderly who want to remain in traditional Medicare would risk being stranded.
The evidence suggests that, in time, this problem could well affect a large share of Medicare beneficiaries. To put that evidence in context, though, it helps to first review the history of the Ryan plan. . .
In the original version, traditional Medicare was eventually to be replaced in its entirety by private plans. Congressional Budget Office found that this shift would raise health-care costs drastically because the private plans wouldn’t be large enough to enjoy Medicare’s leverage in negotiating prices with hospitals and other large providers. The savings that private plans could achieve because beneficiaries would share more of the costs, and therefore economize more, would be more than offset by that loss of leverage — and by the private plans’ higher overhead and need to turn a profit.
In response to the devastating CBO report, Ryan revised his proposal. Under Ryan 2.0, private plans would co-exist with traditional Medicare. (The CBO hasn’t fully evaluated the revised plan yet.)
Many supporters argue that the new plan can’t be as big a problem as the old one, since beneficiaries could always choose to remain in traditional Medicare. In health care, however, choice isn’t always innocuous — and can sometimes be harmful.
I have previously described two downsides to expanding private plans in Medicare. First, it would undercut Medicare’s ability to help move the payment system away from fee-for- service reimbursement and toward payments based on value, because no private plan is large enough to accomplish that shift by itself. Second, the mechanism for adjusting premiums to even out the health risks of individual beneficiaries is far from perfect, so plans can easily game the system, raising total costs. In effect, the plans would end up being overpaid.
The reduced choice of doctors for those who remain in traditional Medicare is a third adverse consequence of moving beneficiaries out of the program.
Currently, Medicare beneficiaries almost universally enjoy excellent access to doctors. And the great majority of beneficiaries never have to wait long for a routine appointment, the Medicare Payment Advisory Commission has found. Roughly 90 percent of doctors accept new Medicare patients.
Doctors provide this access even though they are reimbursed by Medicare at rates that are only about 80 percent of commercial rates — partly because Medicare is such a large share of the market. Which brings us to the concern about the Ryan plan.
How important is Medicare’s market share in influencing physician participation? The evidence is limited, but the best study to date suggests it is significant. In the 1990s, Peter Damiano, Elizabeth Momany, Jean Willard and Gerald Jogerst, all associated with the University of Iowa surveyed Iowa physicians and examined variation among counties. They found that for each percentage-point increase in the share of Medicare beneficiaries in a county’s population, doctors were 16 percent more likely to accept patients on Medicare. The only other study I know of on this topic, an unpublished analysis by Matthew Eisenberg of Carnegie Mellon University also found an effect from Medicare’s market share, albeit one that was substantially smaller than the one Damiano and his colleagues found.
About 10 percent of the U.S. population is now enrolled in traditional Medicare, and an additional 5 percent has private Medicare plans. Let’s assume, for the sake of argument, that the Ryan plan would cause another 5 percent of the population to shift, and to be conservative let’s cut in half the Damiano estimate of the impact from that reduction in Medicare’s market share. Then the chance that a doctor is willing to see traditional Medicare patients would be expected to decline by a whopping 40 percent. The share of doctors accepting Medicare would fall from about 90 percent to 54 percent . . You can read the rest of Orszag’s column here.
( Peter Orszag is vice chairman of corporate and investment banking at Citigroup Inc. and a former director of the Office of Management and Budget in the Obama administration. )