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On Romney’s Medicare plan, a devil in the details

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This afternoon Mitt Romney laid Manuel Balce Ceneta out his Medicare reform plan in more detail than he has before, proposing that the entitlement program compete against private insurance plans.

But the devil still remains in some details about how the plan would ensure affordable Medicare for seniors and how much the changes could drive down Medicare costs.

The plan has two major things in common with the Medicare reforms that House budget chairman Paul Ryan (R-Wis.) proposed earlier this year. First, it would provide seniors with a specified amount of money to purchase health benefits. The level of benefits would depend on the recipient’s income, as those with lower incomes would get more money to spend on Medicare. Second, it would allow private carriers into the Medicare space with two key requirements: They would have to provide a set of benefits comparable to the entitlement program and offer coverage to any senior who applied. The argument is that prices would drop as Medicare plans compete for business.

But there’s one big difference between the Ryan and Romney plans: While Ryan would have phased out traditional Medicare completely, Romney would leave it as an option for seniors. “We’d allows providers to compete to provide the best care at lowest cost,” a Romney campaign official told reporters Friday. “One of the choices will be to remain in traditional Medicare.”

On the face of it, this plan looks relatively similar to a few others we’re familiar with. The Rivlin-Domenici proposal would also allow private plans to compete against Medicare. “It set up Medicare exchanges, where seniors would choose among an array of plans that provided at least the same benefits as Medicare and competed with each other, and with traditional Medicare,” former White House budget chief Alice Rivlin recently testified at a hearing of the Joint Deficit Reduction Committee.

The competition plan also sounds a little like the health insurance marketplaces envisioned under the health reform law, where individuals use tax credits to subsidize the purchase of individual policies. Romney’s proposal, however, would include a publicly run Medicare option, whereas the exchanges in the act lost the “public option” during the health reform debate.

We now know a lot more about what Romney would do about Medicare than we did yesterday. But there’s a crucial question that the Romney campaign has yet to answer: how the government would determine what seniors get to spend on their Medicare benefits. One big concern with the Ryan plan was that it used the Consumer Price Index (CPI), a measure of general inflation, to calculate how fast the seniors’ Medicare benefit would increase. Since health costs have historically outpaced inflation, the concern here is that benefits wouldn’t keep up with the price of Medicare.

The Romney campaign hasn’t decided what it will peg its benefit support to. “It could be the price or cost of Medicare at the year of implementation,” a campaign official told reporters Friday. “If not CPI, it would be some reasonable measure of medical inflation.” How the campaign eventually makes this decision could prove crucial to whether proposed payments to seniors would keep up with Medicare costs.

Other details on how, exactly, this plan would be implemented also linger. How would Medicare protect against “adverse selection,” an insurance term for all the healthy people — who typically have lower health costs -- who would select the cheaper plan. That has the potential to destabilize an insurance market, as seniors with more expensive costs could end up lumped together in a high-cost plan.

Some have questioned what this would mean for Medicare’s bargaining powers: The program has had slower cost growth than private insurance, which is largely attributed to the clout that comes from insuring 50 million seniors. If those seniors are split into various plans, it could undermine Medicare’s ability to bargain for cheaper prices.

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