In its 2016 platform released this week, the Republican Party took a political risk by embracing House Speaker Paul Ryan's longstanding proposal to convert the highly popular Medicare program from a defined-benefit system into a defined-contribution, “premium support” model. It's not surprising that the proposal wasn't mentioned by Republican presidential nominee Donald Trump at the GOP national convention, since he repeatedly has promised during the campaign that he wouldn't touch Medicare.
But as the Kaiser Family Foundation points out in a valuable new policy brief, the premium support model's impact on healthcare providers, beneficiaries, insurers and the federal budget would heavily depend on the details. Those details are lacking in the most recent GOP proposals.
The priority goals of the elected officials who would create it—whether it's federal cost savings, better meeting beneficiaries' needs, or privatizing a public program—matter a lot, because those goals would drive the all-important design features.
The task would be enormously complicated, and the ramifications could be more far-reaching than the changes made by the Affordable Care Act. “Turning Medicare into a premium support system would be a significant transformation of the Medicare program and have implications for many parts of the health care system,” the brief concludes.
Depending on the details, federal spending could decline or grow, it notes. Beneficiary premiums and out-of-pocket costs could rise or fall. Private plans could thrive or shrivel. Provider payments could go up or down. The public Medicare program could grow more dominant or fall into an actuarial death spiral. And these outcomes could vary sharply by local market.
“These policy specifications have important implications for federal savings, beneficiaries' costs, the viability of private plans in markets across the country, and the sustainability of traditional Medicare,” the authors wrote.
The Medicare premium support model was developed in the 1990s as a proposed solution to the program's rising costs. It originally had some support from Democratic policy thinkers, though that has largely evaporated. Ryan has included different versions of Medicare premium support in a series of House Republican budgets. His latest version would let Americans 55 and older stay in the existing program and apply the changes only to younger people when they reach Medicare eligibility age, which Ryan wants to increase to 67.
Drawing on the recent health policy white paper from Ryan and other House Republican leaders, the GOP platform (PDF) proposes to give Americans under 55 an “income-adjusted contribution toward a plan of their choice, with catastrophic protection,” which people could apply either to traditional Medicare or the new privatized program. This would strengthen patient choice, promote cost-saving competition among providers, and guard against fraud and abuse, the platform says.
But Democrats and many senior advocates worry that the Republicans' defined-contribution approach is a thinly disguised move to slowly strangle traditional Medicare. They cite comments like those of former House Speaker Newt Gingrich in 1995 that Republicans weren't trying to get rid of Medicare all at once "because we don't think that that's politically smart," but rather were trying to cause the government-administered part of the program to "wither on the vine.”
Here's one of the many ways that the details—and the overarching goals—matter a lot. A central feature of premium support proposals is to base the federal per-beneficiary contribution to both private plans and the traditional Medicare program on competitive bidding. But a key question is whether the payments are based on the average bid in a given geographic area or the second lowest plan bid. According to the Congressional Budget Office, beneficiaries' premiums and out-of-pocket costs would decrease if payments are tied to the average bid, but would increase if payments are tied to the second-lowest bid. Either way, however, most beneficiaries who choose to remain in traditional Medicare would pay higher premiums than they do under the current system.
Another key issue is setting the rules for benefit design. Under the current system, all beneficiaries are entitled to the same set of benefits, whether in traditional Medicare or private Medicare Advantage plans. If private plans are allowed to offer benefits that are merely “actuarially equivalent” to the traditional program, they could set their cost-sharing and benefits to attract healthier, lower-cost enrollees. That could lead to serious risk-selection problems, with plans serving sicker members either having to cut benefits or raise premiums.
If traditional Medicare had to compete with private plans, how would that change the way the public program pays providers? Would it have to establish limited networks rather than allowing patients to see any participating provider? Would benefits and premiums vary by local area? What would happen to Medicare's value-based payment demonstrations and Medicare payments to teaching hospitals, rural hospitals, and those serving disproportionately poor and uninsured populations?
Finally, if people 55 and older are grandfathered into the existing program, wouldn't there be logistical difficulties and extra administrative costs involved in running two separate programs for grandfathered beneficiaries and newer beneficiaries – including two public programs and two private-plan programs – with different rules for each?
Beyond these daunting design issues, even if Trump wins the November election and Republicans keep control of Congress, they will have an uphill fight winning public support for this proposal. According to a mid-2015 Kaiser Family Foundation survey, 70% of people support keeping Medicare as it is today, with only 26% supporting a shift to premium support, with those percentages similar among Democrats and Republicans. Just 18% of seniors supported turning Medicare into a premium support program.
To gain support, Republicans may have to change their public messaging and emphasize the premium support model's similarity to the popular Medicare Advantage program. “I strongly advised Ryan's people to stop using those words premium support, and just say they want to liberalize and expand Medicare Advantage,” said John Goodman, a veteran Republican health policy strategist. “Instead they are using new words no one has heard of and it sounds scary. I think they could have been a little better about marketing that proposal.”
But, as the Kaiser Foundation policy brief shows, marketing the premium support plan is just the beginning of their challenges.