A Medicare Reform Plan That Just Might Work

By :: December 15th, 2011

On a day when Washington partisans couldn’t even figure out (yet again) how to keep the government running, Senator Ron Wyden (D-OR) and House Budget Committee Chairman Paul Ryan (R-WI) did a remarkable thing: They announced a bipartisan plan to fix Medicare, probably the most contentious of policy issues.

And amazingly, what they came up with might just work.

 Their design—called premium support-- isn’t new—it tracks fairly closely to an idea that’s been pushed by health economists for years and one proposed last year by former Clinton budget director Alice Rivlin and former Senate Budget Committee Chairman Pete Domenici( R-NM).

Ryan-Wyden would work like this:

  • Those 65 and older would receive a subsidy to purchase insurance. They could either buy traditional Medicare or a private policy that met government benefit and marketing standards.
  • Private insurers would have to offer plans at least as good as fee-for-service Medicare and be barred from denying coverage based on pre-existing conditions.
  • The subsidy would be tied to the cost of the second-lowest cost private plan or traditional Medicare. This would be relatively generous.
  • Seniors would buy coverage through an insurance market that would very likely mimic the exchanges in the 2010 health law.
  • For the first time, the proposal would cap Medicare cost growth. Thus, instead of continuing Medicare as an open-ended entitlement whose costs automatically rise with health expenditures, the program would impose a global budget on the program. In theory, at least, the combination of market competition and this overall budget would slow the growth of Medicare costs. This could be the most contentious element of the entire plan.
  • The plan would provide additional subsidies for low-income seniors but increase premiums for those with high-incomes. It would also offer a new catastrophic benefit.
  • It would apply only to those who turn 65 in 2022 or later.

This is a big departure for Ryan, who earlier this year convinced the House to pass a far more radical plan to replace Medicare with a very limited government subsidy. Because it included no cost containment and would have dramatically shifted health costs from the federal government to seniors, that version was widely seen as unworkable.

At the moment, Ryan-Wyden is nothing more than an eight-page concept. And when it comes to health reform, the devil really is in the details. Both lawmakers candidly admit that these won’t emerge until after the 2012 elections.

The White House is already worried that traditional Medicare could be allowed to “die on the vine” if private plans can out-compete it on price. One of those devilish details will be how plans risk-adjust their premiums to reflect the health status of their participants.

But keep in mind that the Ryan-Wyden model looks very much like what Obamacare created in 2010 for those under 65.

With all the nasty partisanship in Washington, policy wonks are naturally attracted to bipartisan ideas. And that can clearly be a trap. Bipartisan ideas can still be bad. But this one isn’t. It has the potential to become the framework for a new way to think about Medicare in an environment where government resources are severely constrained.

It is easy to forget that this is the way things used to work in Washington. Lawmakers of good will would put aside electioneering long enough to find real solutions to real problems. And while their compromises were never perfect, they often improved the status quo. And that, after all, is the idea.


  1. Michael Bindner  ::  5:23 pm on December 15th, 2011:

    I wonder how those candidates that supported the original Ryan plan will feel about this, especially since it implicitly continues Obamacare. It would be nice if this signalled the end to debate on this topic. This also mimics the Bipartisan Policy Center proposal put forth with the assistance of Len Burman, late of TPC (but you already knew that).

    I still think the better plan would be to consolidate funding for Medicare, Medicaid, Health Care Reform and the Child Tax Credit (replacing all other child tax subsidies) in a VAT-like Net Business Receipts Tax. This is basically a corporate income tax where labor is no longer deductible, with offsets for paying the child tax credit, certain other entitlement benefits and most importantly for covering worker and retiree healthcare, either through third party insurance or direct medical care – the latter being the best way to rein in fraud and malpractice suits, as well as providing an incentive to manage costs.

  2. A Conservative Teacher  ::  8:05 pm on December 15th, 2011:

    So Ryan and the Republicans compromise and give up a lot (the public option!), and Obama isn’t happy because it includes some Republican ideas in it? President Obama is a dangerously extreme partisan politician, and even I- a conservative- know for a fact that guys like Newt or Romney would sign on to this sort of bipartisan plan (even though I personally don’t like it). This plan is a good and productive starting point- but Obama is going to kill it in the name of his fanatic views.

  3. Bill Siems  ::  1:24 pm on December 16th, 2011:

    Nice “half-explanation” of Ryan-Widen and nice try in attempting to link this to ObamaScare. I read a much more complete and accurate description of this proposal in (I believe)National Review Online, particularly regarding the bid process to be used to determine market prices in each state. This is similar to Medicare Part D for prescription drugs, which has been successful beyond all expectations and has come in WELL UNDER originally-projected costs.Reason? Competition;Market Forces! ObamaScare will DESTROY markets and cut $500B from Medicare to pay for itself! End of similarity!

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