Rep. Ryan’s proposed changes would be biggest yet for Medicare

April 5, 2011

When House Budget Chairman Paul Ryan announced his plan to redefine Medicare, as part of a broader Republican budget proposal, he did not sketch in all the details. But the outlines make clear that his ideas would represent the biggest change to the federal health insurance program for the elderly since its creation nearly five decades ago.

Ryan (Wis.) would convert Medicare from an entitlement program with defined benefits to an insurance system with a defined government contribution — and far greater reliance on private insurance. Using an idea called “premium support,” it would give Medicare beneficiaries — currently 47 million people who are age 65 or older or who have disabilities — a fixed sum of money to buy their own coverage.

Such a change would raise profound questions — perhaps none more significant than how much beneficiaries would have to pay to cover the cost of their care. Ryan’s plan has ignited a major partisan dispute, with supporters contending that the approach is similar to current health insurance for federal workers and detractors contending that it would reduce help for many of the nation’s most vulnerable patients. Here is a guide to some of the issues raised by Ryan’s plan.

Is premium support a new idea?

Under a premium support system, the government would pay a percentage toward the insurance premium for each person; more help probably would be available for low-income and sicker people.

The idea is not new.

In 1995, Henry Aaron, a senior fellow at the Brookings Institution, and Robert Reischauer, president of the Urban Institute and a former head of the Congressional Budget Office, were among the first to explore alternatives to Medicare’s system of paying for individual services. And in 1998, President Bill Clinton’s National Bipartisan Commission on the Future of Medicare, chaired by Rep. Bill Thomas (R-Calif.) and Sen. John B. Breaux (D-La.), developed a “premium support” idea, but it never became a formal recommendation. Breaux and Sen. Bill Frist (R-Tenn.) tried unsuccessfully to advance the plan as separate legislation.

Is premium support anything like vouchers?

Ryan argues that there are important distinctions, and some conservative policy experts agree.

In a voucher plan, the government would cut a check and then allow seniors to buy the insurance policies they want in the private marketplace. Ryan acknowledged on “Fox News Sunday” that his Medicare proposals over the past several years included vouchers, but he recommended premium support in his budget Tuesday.

A premium support model could resemble the existing system for federal employees, said Gail Wilensky, who oversaw Medicare for President George H.W. Bush and is now a senior fellow at Project Hope. Like vouchers, it limits government contributions but also bases the amount on the premium costs of popular participating health plans. “That gives you assurances that there will be a low-cost plan that can be purchased,” she said.

Others counter that premium support and vouchers are the same thing. “I use the words interchangeably,” said John C. Goodman, president of the National Center for Policy Analysis, a conservative think tank in Dallas. “It just means that the government limits the amount of money that it puts up, and people have to add to it if market prices are higher.”

It’s not surprising that Republicans favor the term “premium support,” as the word “voucher” elicits a negative reaction from the public. A September poll conducted by the Pew Research Center and the National Journal found that 69 percent of people older than 65 opposed vouchers for Medicare. That opposition came from Democrats and Republicans.

What do Democrats think of premium support?

Expect many Democrats to oppose any effort to turn the Medicare program from its current structure, which guarantees a specific set of benefits, into a program that designates a specific amount of funding for beneficiaries. They fear that the “premium support” approach will require beneficiaries, many of whom live on fixed incomes, to pay more for their medical care. That said, some conservative Democrats worried about the growing federal deficit and debt may back the plan if they think it would be done in a reasonable way and would help control Medicare spending.

Alice Rivlin, who co-wrote a Medicare overhaul plan with Ryan and was budget director for Clinton, said the premium support concept has backers in both parties. “It doesn’t strike me as a particularly Democratic or Republican idea once you think that you need to do something,” she said.

What are the unanswered questions?

Many of the details for the revisions to Medicare must be hammered out by congressional committees. That leaves some unanswered questions, including the dollar amount each enrollee would have to purchase insurance — and how much that would rise in future years. Would it go up only with general inflation, by the much higher medical inflation rate or something in between? Linking the annual increase to general inflation would save the government money but cost consumers more.

Other questions include whether all insurers would be able to offer coverage, or only those that meet certain price and quality benchmarks.

This article was written by Julie Appleby, Mary Agnes Carey, Phil Galewitz, Marilyn Werber Serafini and Christopher Weaver. Kaiser Health News is an editorially independent news service of the Kaiser Family Foundation, a nonpartisan health-care policy organization that is not affiliated with Kaiser Permanente.

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