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I’ll going to say up front that I have been skeptical of Ryan’s Medicare plan for quite some time. But the information I found in this article by NPR seems to put together a better case than I have ever heard from Paul Ryan.

Ryan’s “Path to Prosperity” for fiscal 2014, like its two predecessors, would transform the current Medicare program from one that offers a guaranteed package of benefits into one that offers patients a set amount of money to purchase a health insurance plan, either the current Medicare or private coverage.

The idea, known as “premium support,” aims to limit what the government spends on Medicare in the future by allowing that contribution to grow more slowly than health inflation has in the past. That would either convince health plans to find a way to economize (as backers hope) or pass more costs on to patients (as opponents fear).

NPR

Ok, so this is pretty much what you have heard up to this point. Medicare would become a health insurance voucher with a set value that only grows with general inflation. Though health care costs are inflating at a far higher rate than general inflation. That means over time the voucher will have less and less buying power as it’s value is out paced by health care inflation. This would leave a heaver and heaver burden on the elderly. Proponents argue that the market would solve it without any elaboration as to how. With only that many of us reject Ryan’s plan for Medicare as cutting costs on the backs of seniors.

Well the article at least revealed a mechanism by which Medicare vouchers might have an effect on the cost of health care.

Yet the Fiscal 2014 document, while again proposing to jettison the Affordable Care Act entirely, uses even more of the language Obama officials have been touting to sell that plan in describing the Medicare changes.

For example, it describes the choices seniors would have as part of a “new Medicare exchange,” presumably similar to the insurance exchanges now being built under the ACA. Seniors who choose less expensive plans would “receive a rebate for the difference,” between what that plan costs and what the government would pay. That echoes the ACA requirement that health insurers to provide rebates if they spend too much of customer premiums on non-medical purposes.

The Ryan budget document also refers to Medicare “premium subsidies,” although those would be considerably different from the ones available to people with low and moderate incomes under the health law. And it notes that every health plan in the new Medicare exchange would have to “offer guaranteed issue and community rating” and that “insurers would be unable to deny coverage based on pre-existing conditions.”

NPR

Now one could argue here that the exchange is a market in which the consumers have a choice of health plans and companies. Then market forces driven by consumer choice would favor plans that offered the best value. This could help control the cost of health care. Though for choice to have an impact on the market it must be a real choice. If the Medicare exchanges only have a couple different insurance companies providing plans in a given area then it is like to have very little effect. Whereas if there are 5 or 10 different insurance companies offering plans in a given area then Medicare recipients have a real choice of insurance companies and plans. That could impact the market.

Additionally there is another feature that must be included; transparency. In order for consumers to really drive the market they need to be able to gauge the quality of health care provided. Few people can really judge that considering the vast number of procedures and products covered in health insurance. Most of us couldn’t tell if something critical was missing or if a plan has a bunch of extras included. There needs to be a systematic gauge as to the overall coverage provided. The idea of tiers of plans like in the state health exchanges would help. Then people would know that plans in the same tier are going to cover roughly the same services. Though that is not enough. People need a gauge as to the quality of the plan both in terms of customer satisfaction and in terms of health outcomes. Costumer satisfaction is actually rather easy, that could be surveyed regularly for the plans. In fact since it is Medicare the data already exists for each of the individuals involved which means that surveying a representative sample would be rather easy. But quality evaluations are more difficult. People need an idea if a insurance plan leads to overall better health outcomes than another. The whole purpose of health care is improving and maintaining one’s health. So consumers must know how well a plan is achieving that goal.

Now if we assume that the Medicare exchanges will have 1) a variety of choices in all areas, 2) tiered health plans allowing easy comparison of covered services, 3) customer satisfaction ratings and 4) health outcome evaluations, then the Medicare exchanges have a real chance at using the market to influence health care spending.

But now the only problem with Ryan’s plan for Medicare premium support is the fact that the value grows with general inflation not health care inflation. This is a major concern of many because we can’t balance Medicare on the backs of seniors. Well I propose an alteration to Ryan’s plan. Medicare premium support should increase with health care inflation instead of general inflation. Then Ryan should expand senior’s choices to include participating in the existing Medicare system. Allowing the premium support to increase with health care inflation guarantees that seniors will always be able to chose the existing Medicare system without it costs them any additional money.

The beauty of this alteration is that IF Ryan is correct and giving seniors choices will allow consumers to drive the market and decrease costs then the savings will be realized. Seniors will flee from the existing Medicare system in preference for the Medicare exchanges and their choices will reduce the cost of premiums. But IF Ryan is not correct then seniors will not be forced to pay additional health care costs. That hedges Ryan’s bet that the market will take care of reducing health care costs for seniors. If it is correct the costs go down, if not then seniors aren’t punished. Another benefit of this alteration is that it could be implemented immediately. There would be no need to implement news rules starting with new Medicare recipients. Rather the change could be applied to all Medicare recipients because they could chose whether or not to participate in the existing Medicare system or the Medicare exchanges. Thus we can maintain our promise to cover health care for seniors while trying Ryan’s reform to improve that coverage.

Thus I propose that if Ryan truly believes in his plan then he should hedge his bet by linking Medicare premium support to health care inflation. If the market drives down costs then the saving will be realized. If the market does not drive down costs then seniors will not be forced to pay for it.

 

Tangents

Now I would like to move onto a couple tangents which are related Ryan’s Medicare proposal but not to my primary argument about Ryan hedging his bets.

First I am skeptical that the Medicare exchanges will have significant effect on health insurance premiums. Yes it will provide millions with greater choices in health care which has the potential of allowing consumer influence in the market. Medicare will make up approximately 20% of national health care expenditures in 2013. Now this is a big chunk, but that also means that the remaining 80% don’t have the same level of choice in health care. I am not sure that Medicare alone is enough to drive the health care system as a whole. I don’t think Medicare exchanges are going to fundamentally change insurance companies who will be participating in the Medicare exchanges. That is because most of the companies who would be in the Medicare exchange will provide insurance through the state health exchanges, Medicaid and the private market. So the Medicare exchange health plan is only a portion of the health insurance being provided by those companies and thus that one piece probably will not drive the whole company alter how it does business.

Instead I think that we need to de-link health insurance and employment. Most insurance is provided through employers and employees have no choice at all. Employees either take what they are offered or not. In most cases if the employee doesn’t take what is offer then they get nothing because it is too expensive to buy insurance individually. I think that EVERYBODY should have a choice in their health insurance. Then consumers will have a much greater ability to drive the market. It won’t just be one segment of the population that can chose their health insurance it would be everybody. That may actually drive some real changes in the health care system as a whole.

Though some right now are saying “What about the tax break on health insurance?” That is important to both employers and employees, health insurance is tax exempt. Well I say we extend that status while de-linking employment and insurance. Allow employers to offer health insurance premium support in the form of a monthly stipend. The premium support would enjoy the same tax status as if the employer purchased health insurance for the employee. On the other end, individuals would get tax exempt status on health insurance premiums as a whole. Individuals would write it off when doing their income taxes but the tax status of premium support stipends would be identical to the tax status of health insurance contributions. Furthermore I would extend the tax status for all individuals so that everybody enjoyed the same tax status for their health insurance regardless of whether or not their employer offers health insurance or premium support. This would free up people to purchase health insurance as they chose. By giving consumers the power to chose we are allowing consumers to influence the health care market to a greater degree than is currently possible. Thus consumers may be capable of pushing the market toward lower costs.

My final tangent is one I doubt even Ryan has considered. What about Qualified Medicare Beneficiaries (QMB) and Specified Low-income Medicare Beneficiaries (SLMB)? Most people don’t even know they exist. Well QMBs and SLMBs are low income Medicare beneficiaries that receive support from Medicaid to pay for Medicare. In Medicare everybody who works 40 or more qualifying quarters gets Medicare part A for free which is hospital coverage. But you have to pay for Medicare part B which includes doctor visits, the premium is about $100/mo. QMBs and SLMBs have their part B premiums covered by Medicaid. In TX we pay around 600,000 Medicare part B premiums each month through Medicaid. How are those clients going to be dealt with under Ryan’s plan? Are they going to receive a larger premium support payment?

Furthermore QMBs get their coinsurance, copays and deductibles paid by Medicaid in addition to their Medicare part B premiums. How will that be dealt with? Will Medicaid still have to pay for their copays and deductible through the Medicare exchange?

Honestly I doubt Ryan has even considered the Medicare / Medicaid interaction. But it is something that needs addressed before changing the whole system.

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