Paul Ryan's Radical Plan To Reform Medicare not so Radical

by Dan Diamond, California Healthline Contributing Editor

"Medicare can be bankrupt in two-and-a-half years … [it] has no demographic amelioration. It does not get better with the passage of time." -- Senate Budget Committee Chair Pete Domenici (R-N.M.), March 1983

"The open-ended, blank-check nature of Medicare’s subsidy mechanism is threatening the solvency of this critical program and creating inexcusable levels of waste in the system." -- House Budget Committee Chair Paul Ryan (R-Wis.), April 2011

It's springtime in Washington, D.C., and what was old is new again.

The nation is staggering out of a recession, and lawmakers are keying on federal spending and skyrocketing health costs. As usual, Medicare's projected growth is in the crosshairs.

But there's a new wrinkle: unprecedented entitlement reforms are officially on the table.

The Capitol is buzzing over Republicans' fiscal year 2012 federal budget proposal, which cuts $6.2 trillion in federal spending, transforms Medicare and Medicaid -- oh, and repeals the federal health reform law to boot.

Authored by the GOP's Ryan, the plan already has sparked a public outcry, if winning plaudits from many conservative and some liberal commentators, and there's no clear expectation that it will become law in a divided Congress.

Ryan's proposal underscores several realities. First, it opens a new front of resistance to the Patient Protection and Affordable Care Act. Rather than rely on stagecraft, Republicans now have a tangible policy alternative that reframes the debate over Democrats' health reforms.

Second, the plan reveals how in health policy circles, the radical proposal of the moment was yesterday's idea de rigueur -- even for one of President Obama's senior advisers.

Ryan's voucher proposal "was the health equivalent of déjà vu when I read it," according to Forbes' David Whelan.

History of Vouchers

Whelan may be in good company.

The very first issue of Health Affairs in 1981 reviewed the debate to offer vouchers for Medicare beneficiaries. The proposal was among five tactics considered by HHS that year to slow what was seen as unbearable health cost growth for the then 16-year-old program.

In the past three decades, the idea has flickered in and out of popularity, and even bounced between political parties.

Kaiser Health News notes that President Clinton's National Bipartisan Commission on the Future of Medicare floated a voucher model in the mid-1990s but never advanced the recommendation; participating legislators also failed to push a stand-alone voucher bill. As a presidential candidate in 2000, George W. Bush supported a privatization approach for Medicare that would have encouraged vouchers for seniors.

Mainstream politicians have increasingly avoided the voucher model because it's seen as politically damaging. Kaiser Health News notes that seven out of 10 Medicare beneficiaries currently oppose the idea of vouchers for the program. Of late, Medicare vouchers have been the province of think tanks and fringe presidential candidates like Democrat Mike Gravel.

The closest that vouchers came to this White House was when Ezekiel Emanuel -- a physician and bioethics expert -- became one of Obama's top health policy advisers ahead of the reform debate. Emanuel, who left the White House last year, in 2007 advocated replacing the current health care system with a plan that would allow people to buy health coverage with vouchers.

What Makes Ryan's Plan So Different?

Ryan's proposal draws from these previous models. What makes his plan notably different is the timing -- in the wake of sweeping health reforms and in the midst of a debate over deficit spending -- and that he's put it forward at all.

Among other health reforms, Ryan's Medicare overhaul would convert the fee-for-service program into a system that would annually allot fixed subsidies to beneficiaries. These individuals would then shop for private health coverage in a new Medicare exchange market. Ryan noted that the plan would shift more costs to beneficiaries, but said that high-income elderly residents would pay the most.

Ryan argues that these subsidies aren't vouchers but "premium support" -- a meaningless distinction, according to some analysts. The terms can be used "interchangeably," notes John Goodman, president of the conservative National Center for Policy Analysis. Premium support "just means that the government limits the amount of money that it puts up, and people have to add to it if market prices are higher."

A Congressional Budget Office report released on Tuesday found that while Ryan's proposal would slice federal health costs -- with mandatory health spending falling to 6% of GDP by 2030 -- most beneficiaries would pay more for health care than under their current Medicare coverage.

The proposal has sparked widespread resistance from health care stakeholders. An American Cancer Society spokesperson warned that an "ill-defined voucher program with limited benefits could have devastating consequences for cancer patients."

But some policy experts note the model may have promise. Economist Austin Frakt -- who previously has argued against Medicare vouchers, citing Medicare Advantage as a failed attempt to use privatization to control spending -- contends that vouchers could succeed if the government allows private insurers to engage in competitive bidding to lower costs. Similarly, economist Tyler Cowen argued that Ryan's model may work better than Medicare's new payment advisory board to allow individuals some choice while suppressing cost growth.

For his efforts, Ryan has burnished his reputation as the "most courageous man in Washington," argued Slate's Dave Weigel. Few lawmakers disagree that the plan addresses core, necessary policy problems. But Ryan's also created a "predicament" for the GOP, as even House representatives who have pledged to curb federal spending fear that backing the proposal exposes them to political attacks.

That dynamic is the driving factor behind why so many legislators have considered Medicare vouchers -- but so few actually put them on Congress' docket.

Looking Ahead

Ryan's proposal may not "move the goalposts," to invoke the common Washington phrase, but it does put a different team on the field.

Or as New York Times' columnist David Brooks wrote, the proposal "immediately reframe[s] the domestic policy debate."

Even if the plan doesn't advance, Republicans can use it to further debate the merits of conservative health reforms, rather than limit their health care legislation to attacks on the Democratic-backed PPACA. At the same time, Democrats can target senior voters for support and recast their own reforms as better propping up Medicare.

Ryan's proposals are expected to ultimately pass the Budget Committee and House in coming weeks, but die in the Senate. Meanwhile, Democrats say they will soon offer their own 2012 budget plan. Ryan himself seemed aware that his health care proposals "have little chance of becoming law," CQ HealthBeat notes.

But the Washington Post's Ezra Klein noted that Ryan's proposal may result in one accomplishment: "persuad[ing] Democrats -- and perhaps some Republicans -- to adopt something pretty close to the Fiscal Commission's recommendations" on curbing federal spending.

While Washington debates the merits of Medicare vouchers, here's a look at what else is happening in health reform.

On the Hill

  • The House Energy and Commerce Subcommittee on Health recently approved five bills that aim to limit HHS' spending authority under the federal health reform law and adjust some of the overhaul's spending provisions (Zigmond, Modern Healthcare, 3/31). The GOP-led panel passed three bills (HR 1213, HR 1214, HR 1217) that would repeal mandatory health reform funding for state-based insurance exchanges, school-based health center constructions and the Prevention and Public Health Fund, respectively. The subcommittee also passed HR 1215, which would change the appropriations status for state teenage sex-education programs, and HR 1216, which would change the appropriations status for some graduate medical education programs (Gardner, CQ Today, 3/31).
  • Last week, House Ways and Means Committee members Wally Herger (R-Calif.) and Dave Reichert (R-Wash.) released a report finding that AARP will benefit financially as a result of its support for the federal health reform law. Republicans argue that AARP supported a provision in the overhaul that cut $200 billion from the Medicare Advantage program because the group will benefit when seniors replace their coverage with supplemental Medicare policies, known as "Medigap" policies, that the group endorses. According to the report, AARP could make more than $1 billion over the next decade from the sale of supplemental Medicare policies (Eggen, Washington Post, 3/30).

Rolling Out the Reform Law

  • Last month, HHS granted 128 waivers exempting organizations from a provision in the federal health reform law mandating certain levels of coverage, bringing the total number of organizations that have received such an exemption to 1,168. The waivers provide businesses that offer low-cost health plans, or "mini-med" plans, with a one-year exemption from a reform law provision that prohibits caps on health benefits. The number of U.S. residents affected by the waivers has increased by about 300,000 over the past month to 2.93 million (Millman, "Healthwatch," The Hill, 4/2).
  • The federal health reform law has spurred demand for high-cost lawyers and consultants to help hospitals, insurers and physicians to develop accountable care organizations. Ian Morrison, a founding partner of California-based Strategic Health Perspectives, said that ACOs have "all the pieces that drive consulting," in that "there are legal, information technology and cultural changes needed to make it work" (Vaida, Washington Post, 4/2).
  • Last week, FDA issued proposed rules that would require some restaurants and fast food chains to post the calorie content of standard menu items. The rules would apply to any food-selling chains that have 20 or more locations nationwide and to any businesses that either define themselves as restaurants or devote more than 50% of their floor area to the sale of food (Zajac, Los Angeles Times, 4/1). The rules -- which are mandated by the federal health reform law -- would also require restaurants to post statements about suggested daily caloric intake and make additional nutritional information available upon request (Walker, MedPage Today, 4/1).
  • The Early Retiree Reinsurance Program created by the federal health reform law will no longer accept applications after April 30 because it is on track to exhaust its $5 billion budget by September 2012, according to a memo from CMS to congressional staff. The program was intended to remain in operation until 2014, when the health insurance exchanges take effect. CMS officials said that the program technically will close in December 2013, which is also the deadline for employers already enrolled in the program to use their funds (Haberkorn, Politico, 3/31).

In the Courts

  • Last week, the 11th Circuit Court of Appeals in Atlanta said that a randomly selected three-judge panel will hear oral arguments on June 8 in a Florida-based multistate lawsuit against the federal health reform law. In January, U.S. District Court Judge Roger Vinson ruled that the overhaul's individual mandate is unconstitutional and declared the entire law invalid (Reuters, 3/31). In the process of setting the hearing date, 11th Circuit appellate court also rejected Florida Attorney General Pam Bondi's (R) recent request that all 11th Circuit judges hear the case to hasten the appeals process (Norman, CQ HealthBeat, 3/31).
  • In related news, Montana Gov. Brian Schweitzer (D) issued an amendatory veto of a bill (SB 106) that would force state Attorney General Steve Bullock (D) to join the Florida-based multistate lawsuit against the federal health reform law. An amendatory veto offers changes to a legislature-approved bill, which lawmakers later can accept, modify, reject or override. If lawmakers reject or modify the revisions, Schweitzer would have the opportunity to accept the bill or issue a full veto. Schweitzer said the bill should "encourage" rather than "require" Bullock to join the multistate lawsuit, noting that Bullock also should be allowed to use his own "independent judgment ... on how to litigate on behalf of the state" (Dennison, Missoulian, 4/2).
  • Meanwhile, the 6th Circuit Court of Appeals in Cincinnati has announced that judges will hear oral arguments on June 1 in the appeal of a federal district court's ruling upholding the constitutionality of the health reform law. The appeals court will review U.S. District Court Judge George Steeh's ruling in the lawsuit filed by the Ann Arbor, Mich.-based Thomas More Law Center. Steeh upheld the constitutionality of the mandate and rejected the plaintiffs' motion to institute a temporary injunction against the overhaul (Norman, CQ HealthBeat, 3/31).
  • Last week, U.S. District Court Judge Joseph Laplante dismissed an independent lawsuit challenging the constitutionality of the health reform law. In acting on a motion by the federal government to dismiss the lawsuit -- which had been filed by Harold Peterson, a Medicare beneficiary -- Laplante agreed with the government that Peterson's complaint lacked subject-matter jurisdiction because Medicare benefits automatically satisfy the law's individual mandate (CQ HealthBeat, 3/31).
Karen Darnall
Ryan's new Medicare exchange market is similar to "Free Choice" vouchers in the new health reform act. (See PPACA §10108.) When Exchanges take effect in 2014, employers will be required to provide vouchers (tax free) to qualified employees. Employees "qualify" if their required contribution under the employer’s plan is too expensive (8% - 9.8% of income). It is important to remember that PPACA excludes Medicare population from the Exchanges as well as Medicaid expansion. (See PPACA §§ 1311, 2001.) Assuming Medicare Vouchers and Free Choice Vouchers would be administered side-by-side through similar Exchanges, then a 64-year old employee who qualified for Free Choice Vouchers during 2014 could switch to Medicare vouchers the following year. This would be a smooth transition for low income employees nearing retirement.
Don Grunt
I am not quite as optimistic about the merits of Ryan's proposal or how he frames the debate. If he wants to build a Medicare voucher program he needs to do something to ensure that private insurance carriers will actually participate. He seems to have this "If I build it they will come" attitude. My football analogy is that he is just punting the ball.

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