Brookings’ Henry Aaron is one of Washington’s most respected social policy experts. He’s served as a Social Security trustee, vice president of the American Economic Association and much more. It was Aaron, alongside the Urban Institute’s Bob Reischauer, who coined the term “premium support” to describe a model in which you’d open Medicare to competition but install certain safeguards to protect beneficiaries from cost shifting. Now, Paul Ryan has adopted that model and included it in his budget. There’s only one problem, according to Aaron. Ryan may be calling his reforms “premium support,” but that’s not what they are.
Ezra Klein: I think a lot of us have been confused by Paul Ryan’s insistence that his Medicare plan be called “premium support” rather than vouchers. It looks like vouchers. The Congressional Budget Office thought it was vouchers. So what’s the truth here?
Henry Aaron: Me and Bob Reischauer jointly created the idea of “premium-support” in the mid-1990s. It was a response to what we saw as legitimate criticisms of using market forces to rein in the growth of federal health spending. The worry was the reliable savings would come from shifting costs onto patients. The savings from competition were just something we hoped would show up. So the key element was linking the amount that individuals receive to the growth of health-care spending, not to some other index that would grow less rapidly than health-care costs. The other two elements were aggressive regulation of health-care insurance offerings to prevent insurers from overwhelming people’s capacities to sift alternative plans and risk adjustment.
Now Ryan is associated with at least three different plans. There was Rivlin-Ryan, plain old Ryan, and now there’s the Path to Prosperity. They’re all different. In some ways, the Path to Prosperity plan improves on previous version, because the role of exchanges and risk adjustment is nearer to what we had in mind. But it is hands down the worst because it links premiums to consumer prices, which is the slowest growing index.
And what would happen if it was implemented and the government’s premium contributions grew that much more slowly than health-care costs?
If one does the arithmetic, income grows a few percentage points faster than prices. Health-care spending grows faster than income by a couple of percentage points. So we’re looking at linking to an index that grows less rapidly than health-care costs by three to four percentage points a year. Piled up over 10 years, and that’s a huge erosion of coverage. It’s vouchers, not premium support.
The argument Ryan would give you, I think, is that he can use inflation because making seniors into consumers will make them much more conscientious shoppers and they’ll hold down costs in ways that government could never dream of doing. Is he wrong?
The idea here is the competition imposed by just the elderly and disabled is going to bring about these changes. But we have a lot of choice already in Medicare, due to Medicare Advantage. If we were going to get these terrific results, why haven’t we seen them yet?
The other point is we’ve just enacted the Affordable Care Act. It includes, in my view, just about every idea for reining in the growth of spending that analysts have come up with, though it doesn’t go far on some of them. So here we are, we’ve just enacted a piece of legislation under which we might mobilize the potential of the Medicare program to leverage changes in the delivery system and payment systems, and just at that moment, we now have a call to scrap all that and turn to the possible power of just a fraction of health insurance buyers to rein in the growth of spending.
Which gets to something interesting, I think. The Affordable Care Act has two separate theories inside it: the competition theory, which it tries in the exchanges, and the Medicare-as-leverage theory, which it uses to reform the delivery system. Ryan’s plan would take the Medicare-as-leverage option off the table, and by breaking it up, make it impossible to use in the future, as well.
It’s really peculiar to come along and say you want to repeal the Affordable Care Act exchanges but create exchanges for the elderly. If what you’re worried about is competition based on risk selection, the payoff to that type of risk selection is greatest among those who use health care most extensively. We’ve all heard about the great proportion of health services used by people in the last year of life. That means if you’re an insurer, you want desperately to not enroll those people. That means you need to try every marketing device you can not to get stuck with the sickies. When we created Medicare Advantage, a former CEO of one of the largest health plans in the U.S. commented that this was a real opportunity: They would begin to throw dances for the elderly and make their sales pitch at 11 p.m. [Laughs]
There’s one provision of the Ryan bill that stands out as being hands-down the worst, and that is giving the seniors who are poor enough to also be on Medicaid a medical savings account. Does he know who these people are? They’re very sick, they’re very poor and many of them have cognitive as well as physical problems. They would be asked to cope with the inevitable headaches of dealing with private insurance and managing a personal checking account to pay periodic bills. This is not a sensible proposal.