THERE IS NO SILVER BULLET to controlling health-care costs, whether in public programs such as Medicare or in the private market. But two useful tools are leveraging the forces of competition among providers and making certain that consumers bear some of the cost of the health care they consume. Democrats relied on these principles in crafting last year’s health-care bill, eliciting Republican jeers. House Republicans have included them in their Medicare reform plan — where they are jeered with equal ferocity by Democrats.
The concepts were part of a 1995 proposal by two Democratic economists, Robert Reischauer and Henry Aaron, to transform Medicare from a government-pays-for-service system into one in which seniors would receive government funding to choose from among a variety of private plans. As they described it then, “premium support” would “strengthen participants’ incentives to seek services from cost-effective delivery systems and providers’ incentives to operate efficiently.”
Although Mr. Aaron has since rethought his endorsement, the approach ought to be seriously considered as policymakers confront rising Medicare costs. In the Medicare plan crafted by Rep. Paul Ryan (R-Wis.), the premium supports would not grow fast enough; seniors would have to shoulder an increasingly unsustainable share of their medical costs. But the flaws in the Ryan plan should not sink the broader concept.
Mr. Aaron says that he has reconsidered because he is less convinced that the plans would work as advertised, more worried about whether they would be adequately regulated and more optimistic that changes could be accomplished within the existing system. That last hope hinges on the new health-care law, which set up various trial programs to deliver services more efficiently and established an Independent Payment Advisory Board (IPAB) to step in with stronger measures, to take effect automatically unless Congress comes up with equivalent savings, if costs nonetheless grow too fast.
We share Mr. Aaron’s aspirations for IPAB — it was a key factor in our endorsement of the health-care law — but we have less confidence that they will pan out. The board is hobbled by design: It can’t propose higher premiums or cost-sharing and can’t restrict benefits. Hospitals are off-limits until 2020. And that’s if IPAB is allowed to operate as designed. President Obama, in his recent debt reduction speech, recommended even more ambitious cost-control goals for IPAB along with “strengthening” of the board. But proposals to get rid of it already have been introduced in Congress, with bipartisan support.
Given all that, premium support should remain part of the Medicare debate. For all the Republican warnings about a rationing board of government bureaucrats, the current program, overseen by politicians, has repeatedly demonstrated its inability to resist coverage demands from beneficiaries and providers, also known as voters and lobbyists. The president’s commission on fiscal responsibility recommended that premium support be considered if costs continue to rise. The Bipartisan Policy Center’s Debt Reduction Task Force, chaired by Democratic economist Alice Rivlin and former Republican Sen. Pete Domenici, proposed a premium support program with a more reasonable growth rate than Mr. Ryan’s and with the option of traditional Medicare alongside (but with higher premiums if costs rise faster than the set limits). As the report noted, this is not radically different from the existing structure in which private Medicare Advantage plans exist alongside traditional Medicare.
The current debate has an ideological incoherence on both sides. Republicans endorse a premium support model for Medicare even as they work to undo the new insurance exchanges in the health-care law. Democrats distrust premium support when it comes to Medicare but support the exchanges, with sliding scale subsidies that amount to premium support, in the health-care plan. The problem of getting health-care costs under control is complicated enough without knee-jerk opposition being the default reaction to any proposal from the other side.