The Republican plan to overhaul health care

(Joshua Lott | Reuters)

The 2008 Republican party platform on Medicare and Medicaid was pretty vanilla. It called for minor tweaks to the program that just about any health wonk could get behind, things like better coordination between doctors and more vigilance against fraud. The whole section came in at about 200 words.

Politico has obtained a draft of the 2012 proposal and, for health care, four years has meant a sea change. The Republican party now throws its weight behind a complete restructuring of both entitlement programs.

Since Medicare and Medicaid were created in 1965, they have operated as insurance plans where subscribers receive a set amount of benefits. The Republican plan calls for a fundamental change to that structure. They want to set a specific budget for the program and then have seniors and states figure out what benefits they can purchase. The concept of "defined benefit" gets thrown out the window.

"This is the only way," the platform says, "to limit costs and restore consumer choice for patients."

The Republican platform is very similar to what vice presidential candidate Rep. Paul Ryan (R-Wis.) proposed in his 2013 budget. And it also represents where conservative thinking is on health care right now. I spent awhile last month talking to Republican health policy experts about how they would reform our system, if given the chance. Nearly everyone advocated for the "defined contribution" as the best approach to tackle health care spending growth not only in Medicare and Medicaid, but also in private insurance.
In that model, individuals (or, in the case of Medicaid, states) would receive a set amount to cover their health care needs. That, the thinking goes, would push individuals to think more about the cost of the health care they receive.

“For market forces to work, consumers must be cost-conscious,” Jim Capretta and Robert Moffit wrote in a National Affairs article on how to replace Obamacare. “Those who decide to consume goods or services must face tradeoffs that require them to prioritize the various uses of their money.”

The easiest place to understand how this would work is in Medicare. There, conservatives (and a few liberals) have pushed for a premium support model: Seniors would receive a set amount of money they could use to shop for a Medicare plan. They could pocket some of that money by selecting a cheaper plan. Or, if they wanted a plan with more robust benefits, they will have to pony up the additional money.

This is the idea behind Ryan’s Medicare reform plan, and also the underpinning for a separate proposal from Sens. Tom Coburn (R-Okla.) and Richard Burr (R-N.C.)

While that’s the framework, there’s still debate over the details of such a plan. How quickly would the premium subsidies rise? If they get pegged to the rate of inflation, they likely increase slower than rising medical costs, shifting thousands of dollars in costs to seniors. The Republican platform does not specify how quickly they would grow, leaving a major question mark over what the proposal would mean for seniors.

The same model underscores the Republican proposal on Medicaid, the entitlement program that covers 62 million low-income and disabled Americans. There again, the idea of a defined contribution comes up — albeit on a larger scale. States have petitioned the Obama administration for block grants: a lump sum of money to cover their Medicaid eligible.

South Carolina Medicaid director Tony Keck says that, in return, states would want greater flexibility in how they spent money and what benefits they covered. But they would also be open to the idea of new kinds of accountability, such as a requirement to meet certain health metrics over a given time frame.

“We see this as having a bit of give and take,” Keck says. “The federal government might want to get some savings up front. Then, in exchange for the flexibility, we’d have to measuring quality metrics. That’s what managed care plans do for us. And that’s what we’d be doing for the federal government.”

This is actually pretty similar to a Medicaid project underway now in Oregon. There, officials think they can get their Medicaid program to grow 2 percent slower than it traditionally has, by doing a better job of managing patients’ care. The big difference, however, has to do with funding: Oregon received $1.9 billion in additional funds to start-up the coordinated care program (if all goes to plan, that will get paid back to the federal government as Oregon saves $11 billion over a decade).

Republican block grant proposals often look to lower the cost of Medicaid, rather than increase it, which has raised concerns: What would happen to Medicaid patients in a state that failed to stick to its reduced budget?

Keck says that states should be on the hook: If they can’t stick to the federal funds, they would be on the hook for digging into state dollars to make up the difference.

It's worth noting that conservative health policy experts also tend to advocate for bringing this approach to the private market, too, although such proposals tend to be even more politically fraught.

There is pretty widespread support for “leveling the playing field” when it comes to the tax treatment of health care benefits. Right now, companies buy health benefits for their employees with tax-free dollars. Anyone purchasing on the individual market, however, buys with post-tax income, making benefits there significantly more expensive.

The challenge is how to make the two more similar. During his 2008 presidential campaign, Sen. John McCain (R-Ariz.) proposed ending employer-sponsored insurance’s tax-free status. In its place, every family would receive a $5,000 tax deduction for health insurance, regardless of where it was purchased. That, in structure, would look a lot like premium support: Individuals receive a set benefit, pick a plan and, if it costs more than the tax deduction, pay the difference.

The problem then became the politics. With the tax deduction far too low to cover the average, employer-sponsored plan (it hovers around $15,000), McCain began fielding attacks for raising taxes on health care.

Perhaps unsurprisingly, then, the Republican platform does not touch private market insurance reform at all.

“Folks are very cautious about not running into the trap that we did,” says Steve Parente, a former McCain health policy adviser. “Even if that’s what people are thinking makes the most sense, no one is being too specific about how to get there.”

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Ezra Klein · August 27, 2012