Ryan's Medicare overhaul unlikely to move beyond House

Rep. Paul Ryan of Wisconsin is like the dog that caught up to the car he was chasing. Now what?

The former Republican vice presidential candidate chairs the powerful House Ways and Means Committee in the new Congress, an ideal perch from which he can pursue his long-standing dream of transforming Medicare. The latest version of his premium-support plan—which Democrats dub vouchers—would give future seniors (anyone now 55 or under) the option of receiving federal subsidies to purchase private Medicare insurance plans instead of enrolling in the traditional program.

Ryan's blueprint also calls for raising the eligibility age from 65 to 67 and increasing premiums for wealthier beneficiaries—moves he says are necessary to keep Medicare affordable for the nation at large.

While Republicans describe the plan as a form of expanded Medicare Advantage, which has proven extremely popular with many seniors, Democrats charge a broad switch to private plans would allow Congress over time to cap or ratchet down the level of premium support. That, they say, would shift an unacceptable level of Medicare costs onto the elderly.

Stymied in previous efforts to advance premium support, which was first put forward by former Republican Sen. Pete Domenici and former Congressional Budget Office chief Alice Rivlin during the deficit reduction debates in the early part of this decade, the nine-term congressman is now ideally positioned to advance those ideas on Capitol Hill. But he faces a political conundrum.

While his agenda plays well in the House, where conservatives are firmly in control, the newly installed Republican majority in the Senate may not be willing to engage in a divisive battle over Medicare heading into the 2016 election, where Republicans will be defending 24 of the 34 seats up for grabs.

“I anticipate that those issues will be prominent again, at least in the House discussion,” said Julie Scott Allen, senior vice president at Drinker Biddle & Reath's District Policy Group. “The question I have is whether you have the appetite for that in the Senate?”

That's especially true in an environment where most political observers rank the possibility of enacting significant changes in Medicare as close to nonexistent. “It's a certainty that the president would never sign anything like that into law,” said Joseph Antos, a healthcare economist at the conservative American Enterprise Institute. “You go in with the knowledge that this would be purely a political exercise.”

So it's more likely that Ryan and his allies will use the next two years to create a political environment more hospitable to major changes to Medicare, never an easy sell to wary senior citizens or those getting close to being eligible for the program. That way, if Republicans are successful in capturing the White House and retaining their majorities in the House and Senate in 2016, they'll be positioned to advance changes that they argue are vital to maintaining the program's long-term financial viability.

The stage clearly has been set for Republicans to launch a major educational campaign around their proposed changes. Earlier this month, Ryan announced that he would not be running for president in 2016, an indication that he'll be devoting himself to policy battles in Congress. “That tells me that Ryan really wants to focus on advancing some big ideas in D.C.,” said John Gorman, a Washington-based healthcare consultant.

But the fiscal environment has changed significantly since the premium-support agenda was first advanced on Capitol Hill. Medicare's financial outlook is much better than it was coming out of the Great Recession, thanks in part to the tax increases in the Patient Protection and Affordable Care Act and budget cuts enacted during the second half of President Barack Obama's first term. The Medicare trust fund now isn't projected to exhaust its savings until 2030.

Moreover, there's been a significant slowdown in Medicare spending in recent years. It grew at only 4% and 3.4% in 2012 and 2013, respectively, compared to 7.2% and 7.9% as recently as 2007 and 2008. That slower growth, coming despite the rising tide of baby boomers entering the program, lessens the urgency to make significant changes.

Still, there will be plenty of opportunity for Ryan to raise the issue of a major overhaul since it's a rare congressional healthcare debate that doesn't include at least some tinkering in the program. The first indication of what policy changes could be on tap for Medicare will surface with the perennial fight over repealing Medicare's sustainable growth-rate formula for paying doctors. The SGR's latest patch expires at the end of March.

Last year, legislators reached a bipartisan, bicameral agreement to permanently repeal the payment scheme. But the deal collapsed after negotiators couldn't settle on how to cover the cost of the roughly $140 billion plan.

Typically, it's been assumed that funding to pay for the “doc fix”—whether permanently or another patch—will come from within the Medicare program. “There's not a lot of creativity going on here,” said Allen of Drinker Biddle. “It's the same bucket of offsets that come up time and time again.”

That's put other healthcare interests on guard against seeing their pockets picked to pay for the doc fix. The Greater New York Hospital Association has launched an ad campaign in Washington metro stations warning against cuts to hospitals. “When hospital funding gets cut, patients feel the pain,” read the ads already blanketing the capital's metro stations.

There are some substantive changes to Medicare that policy experts say could gain bipartisan support to pay for a permanent SGR repeal. One possibility is increased means testing for beneficiaries. Since 2007, individuals with incomes above $85,000 and couples with incomes above $170,000 have paid higher premiums than other seniors. Obama's most recent budget proposal included $53 billion in savings achieved by further raising premiums for wealthier Medicare enrollees. That's an idea with broad support among conservative healthcare policy experts.

But even that change would encounter stiff resistance from liberal Democrats and consumer advocacy groups. The National Committee to Preserve Social Security and Medicare points out that the number of beneficiaries subject to means testing is already slated to increase from 2.4 million in 2011 to 7.8 million in 2019 if the income thresholds remain flat.

Another potential source of savings could be combining Medicare Part A, which pays for hospital care and is supported by the payroll tax and associated trust fund, and Part B, which comes out of general taxes, into one benefit. That's an idea that Obama has signaled a willingness to consider in the past, and that's supported by influential GOP lawmakers. But merging Parts A and B would also run into resistance from supporters of the current benefit structure because it would almost certainly result in higher costs for enrollees.

The bottom line is that most healthcare policy observers are highly skeptical about the prospect for passing a permanent SGR fix this year. They anticipate yet another patch will be negotiated as the March 31 deadline nears. “The issue is all about pay-fors,” said John Rother, CEO of the National Coalition on Health Care who previously lobbied for AARP, the nation's largest senior citizen lobbying group. “That's going to be the tough part and always has been.”

Medicare Advantage, which now attracts roughly a third of all Medicare beneficiaries, could be another early source of tension between the Obama administration and Congress. The Affordable Care Act's cutbacks to the popular program are being phased in over six years.

The aim is to bring spending on Medicare Advantage closer in line with the traditional fee-for-service program. In 2009, the average private plan Medicare enrollee cost 114% as much as their counterparts in the fee-for-service program. By last year, that disparity had been reduced to 106%.

More cuts are on the horizon. The Obama administration will announce proposed 2016 rates next month. America's Health Insurance Plans, the main industry trade group, is already gearing up its lobbying efforts to fight any payment reductions.

In each of the past two years, AHIP has succeeded in blunting the steepest proposed cuts in part by assembling a bipartisan coalition of supporters in Congress. Earlier this month, the advocacy group hosted a briefing on Capitol Hill featuring Rep. Patrick Murphy (D-Fla.) to build support for the program ahead of the perennial rate fight.

Political observers expect Obama's proposed spending reductions for 2016 will be the steepest yet. Consultant Gorman suggests AHIP's efforts to roll them back won't work this time around.

“I think that's a fool's errand,” he said. “There's just no money.”

The SGR and Medicare Advantage debates could provide a preview of the broader Medicare discourse on Capitol Hill. Most observers say major changes to the program will be difficult to justify given the unprecedented slowdown in spending. Medicare costs per-beneficiary have been largely flat for five years.

Even with more than 1 million beneficiaries being added to the rolls each year, the cost of the program has increased an average of 4% a year since 2009. The trust fund's insolvency deadline at 2030 is now more than a decade longer than anticipated five years ago.

“Medicare is doing better than it has done in years,” said Joe Baker, president of the Medicare Rights Center, a consumer advocacy group. “It's the wrong time to say, 'Oh, we're in a crisis with Medicare,' because we're not.”

Further compounding the difficulty is the looming presidential contest. Both parties have proved adept at political demagoguery when it comes to Medicare.

Republicans and their allies in last November's election blasted Democrats for supporting $700 billion in spending reductions that were part of the Affordable Care Act, an assertion that's been deemed misleading at best.

Democrats and their allies have tarred GOP candidates as advocates of destroying Medicare because of their support for Ryan's premium-support plan.

The lack of enlightened discourse on the issue means it's unlikely that Republicans—and their potential presidential nominees—will want to be associated with major changes to the program with the White House up for grabs.

But the major uncertainty is whether the Senate will be willing to engage in a major debate over the structure of Medicare, much less go along with a significant overhaul. Republicans took control of the chamber in January for the first time since 2007. That means there's not much of a track record on which to forecast their policy objectives. All eyes will be on Sen. Orrin Hatch (R-Utah), who will be chairing the Finance Committee and its jurisdiction over any changes to Medicare.

In a 2013 speech on the Senate floor, Hatch laid out his own vision for an overhaul of the program. That included raising the eligibility age to 67, merging Parts A and B and allowing private health plans to compete for beneficiaries against the traditional fee-for-service program. That blueprint tacks closely to what's been laid out by Ryan.

But most healthcare observers think Hatch and his Senate colleagues will be wary about moving forward quickly on significant changes. That means the fate of Ryan and his grand plan will largely rest on who wins control of the White House in 2016.

Follow Paul Demko on Twitter: @MHpdemko