November 27, 2014

The Wyden-Ryan Medicare Plan Moves the Ball Forward

The demise of the deficit reduction super committee left many people wondering whether the polarized atmosphere in Washington has made it impossible for Republicans and Democrats to reach agreement on the thorniest issues that must be resolved to achieve a fiscal sustainability plan.  

So it was heartening last week to see a bipartisan pair of prominent lawmakers – Sen. Ron Wyden (D-Ore.) and Rep. Paul Ryan (R-Wis.) -- release a joint Medicare reform proposal.

At its core is the concept of “premium support” (Wyden and Ryan call it “coverage support”) in which the federal government would pay a set amount to subsidize Medicare premiums. Beneficiaries could elect to remain in the traditional Medicare program or purchase their health insurance on an “exchange” of approved plans, which would be required to offer “at least as comprehensive a benefit as traditional fee-for-service Medicare.” The plans would also be required to issue policies to all seniors who apply (i.e., guaranteed issue).

The level of support would be determined through a competitive bidding process similar to the one currently used to set premiums for the Medicare prescription drug benefit (Part D). There would be a cap on out-of-pocket expenses (catastrophic coverage), and the coverage support “would be adjusted to provide additional support for the poor and sick, and reflect a reduced subsidy for the wealthy.”

Like all premium support models, this plan assumes that consumer competition among private plans and traditional Medicare will encourage efficiencies and help hold costs below currently projected levels. However, a back-up mechanism, not detailed in the proposal, would cap total Medicare cost growth at the growth rate of the economy (GDP) plus one percent beginning in 2023, the year after the new design would take effect.

Overall, the plan closely resembles the updated “defined-support” proposal of the Bipartisan Policy Center’s Debt Reduction Task Force chaired by Alice Rivlin, a Democrat, and former Sen. Pete Domenici, a Republican. One key difference is that the Wyden-Ryan plan places a cap on total Medicare expenditures whereas the Rivlin-Domenici plan places a cap (GDP plus 1 percent) directly on the growth rate of the government’s contribution to insurance premiums.

This difference has consequences for how the plans would be “scored” by the Congressional Budget Office (CBO). Because current law already assumes a cap on Medicare spending in line with the Wyden-Ryan cap, it is not clear that the coverage–support aspect of this proposal would count as a reduction in spending. It is also unclear how the Wyden-Ryan cap would be enforced.

The plan differs significantly from the “premium support” proposal contained in this year’s House Budget Resolution, authored by Rep. Ryan. The House plan would phase out traditional Medicare and cap the growth of premium support at the rate of inflation, which was widely criticized for being unrealistically low. The new plan, by contrast, preserves traditional Medicare as an option and allows the government’s contribution to grow in line with the cost of providing services. 

What these comparisons suggest is that there are many different ways to implement a premium support model for Medicare. In evaluating any particular plan, it is important to look beyond the labels and examine the substance. As Wyden and Ryan argue, “the more the national conversation about the future of Medicare deteriorates into partisan attacks that our opponents will ‘cut Medicare’ versus superficial campaign pledges to ‘make no changes’ to a 45-year-old program, the harder it gets to have a serious debate about the best way to ensure that seniors can rely on a strengthened Medicare program for decades to come.”

The Concord Coalition believes that premium support is a promising strategy for putting Medicare on a realistic budget while providing incentives for providers, insurers and beneficiaries to improve the value and quality of care.

With or without premium support, there is no question that at some point Congress will need to tackle Medicare reform. No fiscal sustainability plan will work unless Medicare costs are brought under control. And no solution is likely to be enacted without bipartisan support. In recognizing these facts and nudging the discussion in that direction, Wyden and Ryan have set a very good example.