Paul Ryan’s Plan for Medicare: A Disaster for Seniors (Why Doctors Might Stop Taking Medicare)

“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.

Ryan Revision

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.

Medicare Doctors

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. )

10 thoughts on “Paul Ryan’s Plan for Medicare: A Disaster for Seniors (Why Doctors Might Stop Taking Medicare)

  1. Your information about Medicare Part C and to a lesser extent the Wyden-Ryan plan is very misleading.
    1. No one is proposing a voucher system. Vouchers are coupons. No one proposes to give seniors coupons.
    2. Unlike traditional Medicare insurance companies, many if not most Medicare Part C insuers are non profits. So Wall St. was not the reason that Choice+ did not work nor that Advantage has worked (see 9/20/2013 HHS press release; you’re out of synch with your political cronies)
    3. Part C plans do not offer “sweeteners.” By Medicare law they have to give the extra rebates they receive over their initial bids back to me the beneficiary. I get the extra money, not the insurer (whether that’s fair is worthy of debate but that is not what you are saying)
    4. Latest government (MedPAC) data (June 2012 Data Book Chart 5-2) shows that Medicare Part C is not cherry picking healthier seniors (think about it: that might have been possible when in 2005, Medicare Part C covered only 5% of seniors but as of next year it will be covering over 30% of us)
    5. Your little stories about cancer patients wanting to go out of network is interesting but out of step with your political cronies. All reform plans including Obamacare and RomneyCare push accountable care organizations/HMOs and global payment/capitation. How do you propose Medicare avoid that same reform?

  2. Any plan that is ‘private’ will see it’s bottom line in dollars. We already know that this greatly compromises quality of care, as expected. It is primarily ‘money driven’ for shareholder benefit.
    However, alongside a capitated and upgraded Medicare For All plan, private insurance must always exist….. As it does in Canada, Australia, UK, etc.
    What is so bad about requiring the right to universal care to be enforced? The US is the only developed country holdout.
    Why is there less outrage that QE3, the boldest yet, is placing the taxpayer on the hook for even bigger penalties (the debt has to be serviced)? Also, what benefit does it produce in the end? More pain and a possible currency crisis, for starters. How much have a couple of questionable wars cost us? And so on.
    The biggest battle must be to protect our most valuable asset (by far), health, from being further compromised by irrational and destructive ideologies.

  3. Maggie:

    The scariest part of all of this, is people believe thi to be a solution the same as many believe SS is bankrupt. In spite of the TF for either many people are of the opinion the age for retirement and Medicare must be increased to save our children and both plans. In any case, turning to the private market is not the anser for the reasons you and Orzag have pointed out. Thanks for the article Maggie

  4. From a budgetary point of view, I have never understood why there is so much debate about how much Medicare is going to pay for office visits.

    The bulk of Medicare spending flows out in ways related to hospitals —
    in the DRG payments for hospital stays, in the payments to hospital-based surgeons, in the extra payments to teaching hospitals, in the extra payments for treating Medicaid and uninsured payments, in payments for skilled nursing care that follows hospital stays, etc.

    Whether we pay $59 or $99 for an office visit ‘without complications’ is not, to my knowledge, a very big deal financially. If there are 45 million people on Medicare and they go to a doctor 6 times a year, that comes to $270 million visits. A difference of $40 per visit comes to $11 billon. That is almost a rounding error in overall Medicare spending.

    I would guess that one reason for this concentration on doctor’s fees is that a physician is the entry point into medical care. If a person is discouraged from seeing a doctor, they will postpone care and this can lead to higher costs and tragic results down the line.

    So I can buy the gatekeeper issue. But when discussing Medicare solvency, I want to read more about overpayment for heart surgery, cancer treatments, and outlier cases of all kinds.

  5. Bob –22% of Medicare dollars are spent on “physicians and other clinical services. (This does not include dentists or home health services.)
    31% of Medicare’s funds go to hospitals (Some of that money goes to drug and device companies, including very pricey cancer drugs, knee implants, cardiac implants etc.
    So probably hospitals take in about 28% of the pie.
    If you include drugs and devices administered in hospitals,
    Drugmakers (who increasingly also manufacture devices)
    wind up with 14%.

    Bottom line–what we spend on physicians’ services adds up. See the “Massachusetts” section of my newest post.

    In Manhattan, doctors don’t charge $59 or $99 for an office visit. Specialists may charge $175. I have a $50 co-pay every time I see a specialist; $35 for a primary care doctor–and I have very good insurance with no deductible and relatively little cost-sharing.
    Physicians charge so much in part because the cost of
    real estate and labor is so high.
    The problem is that solo and small practices in urban centers have a very hard time covering their overhead.
    This is why, increasingly, physicians will be joining larger organizations where they enjoy efficiences of scale.
    In expensive cities, solo practice or practices comprised of 2 or 3 doctors just isn’t a viable model for most–unless they
    bought the real estate 30 years ago.
    Finally, many people assume that end of life care, organ transplants, major surgeries, etc. eat up most of our Medicare dollars. But the truth is that chronic diseases are taking the biggest chunk of our Medicare dollars: Alzheimer’s, diabetes (if not effectively managed) MS. The patients can live for a long time suffering from these diseases and that’s how the bills pile up.

  6. run 75411–

    Raise the age for Medicare eligibility is not a solution. Taxpayers will still have to provide subsidies for low-income and middle-income 65-year-olds and 66-year-olds.
    Moreover when people say that “we” are living longer, they forget that not all of us are living longer. Many African American men contribute to Medicare throughout their working lives, and then receive Medicare checks for only 2 or 3 years before they die. Poor people in general die sooner. Finally, people engaged in heavy physical labor
    need to retire–and go on Medicare– when they’re 65.

    And as you suggest, SS is Not going broke. With minor adjustments it will be fine.

  7. Ruth–
    Yes, we do need to persuade hosptials and doctors to follow “best practice” guidelines. The ACA contains carrots and sticks that are likely to have an effect. In addition, as more doctors are working in large organizations, more people are looking over their shoulder. In that situation, it’s harder to be a Lone Ranger doing things “my way.”

  8. When it comes to Medicare an issue that I rarely seen discussed is the comparison of private Medicare (Advantage) to traditional Medicare. A senior on traditional Medicare has the option to see any provider that takes Medicare. With Advantage you are usually limited to a panel of providers. The Advantage plans cost taxpayers an extra 14-20% more. As an optometrist provider I almost always get reimbursed 30-60% LESS when I see a patient with Medicare Advantage! (This comparison is made using the same CPT code) This makes absolutely no sense! And of course, this is the model Ryan is pushing-a more expensive private Medicare where reimbursement is less.

  9. Jim–

    Actually, I’ve written about Medicare Advantage a number of times (See the “search box on the right hand side near the top of the page, and type in “Medicare Advantage.”

    You are right, it does cost taxpayers more and in most cases,
    they are not getting get value for their money. Reserach shows that there are some good Advantage HMOs–usually HMOs that have deep roots, are well established, and focus on the quality of care.

    But patients do usually have to stay “in network” and
    I can imagine that payment to physicians is checkered.
    Most providers like Medicare because, even though it usually pays somehwat less than some insurers, usually you
    know what you’re getting & what it covers. You don’t have to get on the phone and argue with them.

  10. Dennis–

    You’re confusing two different programs.

    I’m not writing about Medicare part C (which covers
    prescription drugs). I’m writing about Medicare Advantage,
    which covers Mediacare Part A & B and is what replaced Medciare + Choice when it failed.

    I’m writing about Medicare Advantage. It offers “sweeteners” like gym memberships to attract customers.
    The government pays Advantage insurers more than
    it would cost Medicare to insure the same patients.