Gingrich’s plan to “Newtify” Medicare Advantage

Newt Gingrich (Peter Foley - Bloomberg) Newt Gingrich’s recent interview with the daily podcast “Coffee & Markets” is probably the most we’ve heard the candidate talk about his plan for Medicare reform in this campaign cycle. And so as Mitt Romney continues to attack the former House Speaker on Medicare policy, it’s worth taking a look at what plan Gingrich would pursue if elected.

The key paragraph, which comes after some probing from interviewer Ben Domenech, is this one, where Gingrich explains how he would beef up the role of Medicare Advantage:

So, let’s take the example where I think Ryan is on to something I actually support, which is that you ought to have a premium support option. I wouldn’t do it in 10 years. I would do it next year, but I would do it as a voluntary program. And then I would go to the insurance industry and say to them, is there a way you could make a premium support option really desirable? Well, it turns out Medicare Advantage has 25% of the market despite the opposition of the bureaucracy. So, if you had a bureaucracy that favored market oriented systems, you might actually get to 50% much faster than you think.

What Gingrich proposes sounds a lot like what we have in Medicare right now: A public, traditional Medicare plan coupled with private alternatives, Medicare Advantage, that seniors can voluntarily enroll in. And that’s kind of Gingrich’s point: He doesn’t want to move forward on a Medicare plan that’s not politically popular. That’s how he explains his infamous criticisms of Budget Chair Paul Ryan’s Medicare proposals, which would move the entire program into a voucher system. ”If there’s a program which is very, very unpopular should Republicans impose it?” Gingrich asks. “And my answer is no.”

What Gingrich proposes sounds a lot like, as Forbes’s Avik Roy describes it, a “Newtified version of Medicare Advantage,” where federal regulations would get out of the way, doing more to encourage private plans to compete against traditional, government-run coverage.

But as Roy and others have pointed out, the current environment is pretty hospitable to Medicare Advantage plans already — and that’s probably driven up the cost of Medicare rather than reduced it.

A little bit of Medicare financing background is helpful here. Medicare sets benchmarks for how much it’ll pay Medicare Advantage plans for providing care to the elderly. The benchmarks can get complicated — you can read more about how they work here — but in a way, it’s similar to premium support. If seniors want a Medicare Advantage plan that costs more than the benchmark, they pay a higher premium. But the key thing to know about the benchmarks is this: Since 2006, Medicare benchmarks have been set higher than the cost of traditional Medicare.

Those higher payments were meant to draw more seniors and health plans into the Medicare Advantage program. And, judging by the enrollment numbers, they worked:

But building a system that encourages enrollment in private Medicare plans comes at a price. Medicare Advantage plans cost more per enrollee than the traditional option, usually to the tune of about $1,000:

What’s driven more health insurance plans, and more people, into Medicare Advantage has been increasing health care spending rather than decreasing it. As Roy writes, “Medicare Advantage only started becoming popular when the government decided to subsidize it at higher levels than traditional Medicare.” In this interview, Gingrich did not get into what he would do to make private plans more attractive. But, what’s worked so far in making private health plans more popular hasn’t worked to bring down the entitlement’s costs.