GOP gears up to transform Medicare. Is U.S. ready for wholesale change?

During the presidential campaign, Donald Trump repeatedly promised not to touch Medicare and blasted other Republicans for proposing to restructure the popular program.

But soon after his surprise victory Nov. 8, the president-elect and congressional Republican leaders signaled they will move rapidly to turn the giant government-run health insurance program into a “premium support” system that pays private plans and the traditional fee-for-service program a fixed amount per beneficiary. The idea is to have the traditional program compete with private plans on equal terms and let beneficiaries choose between them, paying out of pocket for premiums that exceed the voucher amount.

They argue that this model, in the words of Speaker Paul Ryan's July white paper, will “put Medicare on a sustainable path to ensure it can care for future generations.” Conservative analysts believe the public will accept the premium-support model because it would expand Medicare Advantage plans, which have become increasingly popular, enrolling nearly one-third of all beneficiaries. Democrats and senior advocacy groups fear premium support ultimately would cause traditional Medicare to shrivel and impose higher costs on poor and vulnerable seniors.

The GOP plan would also raise the Medicare eligibility age to 67 on the grounds that Americans are living longer, though recent studies show growing disparities in longevity between more affluent and less affluent people. This may prove a particularly difficult political lift, because the repeal of the Affordable Care Act's premium subsidies and guaranteed-issue rules could make it difficult for people who are 65 and 66 to find affordable private insurance.

Some health system and insurance leaders may welcome changes that nudge the senior program away from fee-for-service payment and more toward the Medicare Advantage managed-care model. They see Medicare Advantage as more consistent with the industrywide drive toward value-based payment and delivery models. In addition, a growing number of hospital systems have launched their own Medicare Advantage plans.

“Under premium support, there potentially would be more incentives for Medicare managed-care plans to expand,” said Warner Thomas, CEO of Ochsner Health System in Louisiana. “In higher-cost markets, Medicare Advantage is a better and cheaper option than traditional Medicare.”

Few healthcare leaders anticipated that a major Medicare overhaul would be on the table at the same time Republicans attempt to craft a complex and controversial replacement for the ACA. They want to see many more details than are contained in Ryan's one-page outline of premium support in his A Better Way white paper before they take positions on the issue.

As the Kaiser Family Foundation pointed out in a July policy brief, the model's impact on providers, beneficiaries, insurers and the federal budget would heavily depend on the details. Federal spending could decline or grow. Beneficiary premiums and out-of-pocket costs could rise or fall. Private plans could thrive or struggle. 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.

“Premium support has been much discussed but we don't have enough information to know precisely what it means,” said Chip Kahn, CEO of the Federation of American Hospitals and a former Republican Senate staffer. “We can talk concepts all day long, but you don't operate hospitals on concepts. You operate your hospitals on how a program actually works. For my members, it's all in the details.”

Some experts question whether private Medicare plans truly would provide better quality care at lower cost if the traditional government-run fee-for-service plan shrank or was significantly weakened. A Health Affairs study last year found that Medicare Advantage plans keep their provider payment rates down by pegging them to traditional Medicare rates. It also found that plans benefit from Medicare's rule that out-of-network providers cannot charge more than Medicare rates.

“The only way Medicare Advantage plans are competitive with traditional Medicare is that there is a public option and there is price regulation that limits balance billing by non-network providers,” said Dr. Robert Berenson, a co-author of the Health Affairs study and former member of the Medicare Payment Advisory Commission.

Another question is if traditional Medicare had to compete with private plans, how would that change the way the public program pays providers? Would the fee-for-service program 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?

A few days after the election, Ryan said he wanted to address Medicare's “serious problems” as part of repealing and replacing the ACA. He argued that Medicare's financial problems were caused by the healthcare reform law—though actually the ACA extended the projected solvency of Medicare's Part A Hospital trust fund.

The Trump transition team updated its website after the election to include a new proposal to “modernize Medicare, so that it will be ready for the challenges with the coming retirement of the Baby Boom generation—and beyond.”

And House Budget Committee Chairman Dr. Tom Price—a top contender to become HHS secretary—said that congressional Republicans will push ahead with a Medicare overhaul within the first six to eight months of 2017, and that the Senate will pass it through an expedited budget reconciliation process that avoids a likely Democratic filibuster. A spokesman for the Republican committee members confirmed that Ryan's premium-support model is what Price has in mind.

Drawing on Ryan's white paper, the 2016 Republican Party platform proposes to give Americans now 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 when they become eligible for Medicare. This would strengthen patient choice, promote cost-saving competition among providers, and guard against fraud and abuse, the platform says. People now 55 and older could stay in the current Medicare program when they become eligible or choose to participate in the new privatized model, picking a plan on a new Medicare exchange.

According to Ryan's one-page A Better Way outline, the federal contribution for those under 55 would be adjusted when they become eligible based on each beneficiary's health status. Lower-income seniors would receive additional assistance to help cover out-of-pocket costs, and wealthier seniors would pay a higher share of premium costs.

Republicans have been promoting some version of a defined-contribution or voucher system for Medicare since the 1990s as a solution to Medicare's rising costs, which have moderated over the past several years. President Bill Clinton vetoed such legislation in 1995. Ryan has included different versions in a series of House Republican budgets since 2011, softening some of the tougher cost-saving features with each new edition.

But the concept is strongly opposed by Democrats and so far lacks public support. According to a mid-2015 Kaiser Family Foundation survey, 70% of Americans support keeping Medicare as it is today, with only 26% supporting a shift to premium support. Those percentages were similar among Democrats and Republicans. Just 18% of seniors supported turning Medicare into a premium-support program.

While some observers expressed surprise that Republicans want to leap into the perilous politics of Medicare reform after Trump's narrow election victory, Tom Scully, who served as CMS administrator under President George W. Bush, was enthusiastic. “If they're going to reform the ACA and Medicaid, absolutely they'll do premium support, and they should, it's the right thing to do,” he said. “They might get killed, but I don't think they're going to find it that politically difficult.”

Another Republican expert was less certain whether his party would speed ahead on Medicare. “It will come to a point where replacing the ACA is such a big exercise that they'll have to separate the two and figure out which one they want to do first,” said Chris Condeluci, who worked as Senate Finance Committee Republican staffer during the drafting of the ACA. “Ryan is pragmatic and will be willing to table Medicare restructuring if he recognizes it's a longer exercise.”

Meanwhile, Democrats are promising a unified front to block the GOP Medicare plans, recalling their success in stopping Bush's Social Security privatization proposal in 2005. They hope a big win on this issue could help produce Democratic election gains in 2018. Medicare “is a fundamental pillar of health and economic security,” said House Democratic leader Nancy Pelosi. “And we will not go down that path.”