The Kaiser Family Foundation has taken a deep dive into world of premium support, modeling a plan pretty similar to Mitt Romney’s proposed Medicare reforms.
The bottom line: If implemented right now, most seniors would pay more under the current premium support proposals. It’s worth keeping in mind, though, that that’s a big “if.” The Romney-Ryan proposal would hold off a decade before transitioning to this system.
What Kaiser did was pretty simple. Its researchers modeled what would happen if seniors received a set amount from the government to pay for their Medicare benefits. That check would be equal to second-lowest bid from a private, Medicare Advantage plan. That’s the same benchmark used in the Ryan Budget, Romney-Ryan proposal and the Domenici-Rivlin proposal.
That was step one. Step two was looking at whether that check would cover the cost of providing Medicare benefits under the traditional or private plans, in a given area. For 59 percent of seniors, it wouldn’t: 25 million seniors would pay more for their current benefits if the government enacted this premium support model right now.
In the middle column above, you see that about half of seniors on traditional Medicare would end up paying more. There’s a split for seniors on the same plan because the Medicare benchmark gets set differently for different areas of the country (health care in California tends to be more expensive than medical services in neighboring Nevada).
This is the scenario if all seniors stay in the exact same Medicare plan. But there’s a decent chance some seniors wouldn’t: The higher bills could make them think twice about the benefit package that they’re buying. Kaiser looks at scenarios where a number of seniors — between 15 and 25 percent — switch to that baseline plan, the second-cheapest. If 25 percent of seniors switch, then those paying more for benefits drops to 35 percent.
There would be a lot of geographic variation too. As the Kaiser analysts explain, “In some parts of the country, private plan bids are lower than the costs of traditional Medicare.” In other parts, they are higher — meaning that seniors might even stay on a low-cost private plan and receive a rebate. Either way, this creates big geographic differences in how far a Medicare voucher would go.
This map looks at the percent of seniors who would expect to pay at least $100 more each month under the premium support scheme:
“The share of beneficiaries subject to higher premiums if they remained in their same plan would vary greatly by state,” Kaiser notes, “Ranging from less than two percent of beneficiaries in Alaska and the District of Columbia to more than 90 percent of beneficiaries in Connecticut, Florida, Massachusetts and New Jersey.”
There are a few factors to keep in mind when thinking about these results. This study captures what would happen if, right now, premium support went into effect. It does not capture how private Medicare plans would react to that new market.
Right now, there are some pretty big incentives for private Medicare plans to make their bids lower than the expected cost of health care. (The reasons are a bit complicated and laid out in more detail here). If private plans decided to raise their bids by 25 percent, only 34 percent of seniors would find that their voucher check did not cover their traditional Medicare premium. But that would also mean the system wouldn’t save much money.
There’s also the possibility that government-run Medicare could change. One big goal of the Affordable Care Act, after all, is to make the insurance plan more cost-efficient by changing doctors’ financial incentives. If Medicare became 10 percent less expensive, the Kaiser analysis estimates that the number of seniors who paid more would again drop by double-digits.
If the Romney-Ryan reforms work as planned, a lot of these changes would indeed happen — driving down Medicare costs in the process. Seniors might take a second look at their Medicare plan and decide to go with a less expensive option. Medicare may become more aggressive in rooting out inefficiencies to stay competitive, again lowering health-care costs.
There are a lot of unknowns about Medicare’s future, variables that are pretty crucial to understanding what premium support would mean for seniors. What we do know, right now, is this: Implementing a premium support system right now would mean higher costs for the majority of seniors.