Nov 17 The Congressional Super Committee
negotiations are coming down to the wire, and Republicans are
demanding that Medicare privatization be included in any final
The news comes on the heels of GOP Presidential candidate
Mitt Romney's recent call for creation of a "premium support"
option that would let seniors choose between traditional
fee-for-service Medicare or a defined amount of money that they
could use to shop for a private plan in a federally-sponsored
Medicare exchange marketplace. Romney's proposal is a cousin of
the privatization plan proposed by Rep. Paul Ryan, and endorsed
by the House of Representatives earlier this year.
Even if the Super Committee process stalls, the future of
Medicare will be a key issue in the 2012 Presidential race, and
any restructuring of the program would impact billions of
dollars of healthcare spending and tens of millions of
beneficiaries. How would privatization impact seniors? How
would benefits change, and what would it mean for seniors' cost
of healthcare? Here are answers to five key issues.
1. What are Medicare premium supports and vouchers, and how
would they change the current Medicare program?
Proposals for Medicare premium supports and vouchers all
have one thing in common: They would transform Medicare from a
program of defined benefits to one of defined contribution.
Much like the transition from defined benefit pensions to
defined contribution 401(k) plans, the change would shift risk
from an institution (the federal government) to individuals
(seniors). Medicare today promises to deliver a specific set of
benefits to seniors; premium supports and vouchers would
provide a defined government contribution toward whatever
healthcare cost they incur in the private market.
But there's a significant difference between premium
supports and vouchers. Vouchers could be set purely on the
basis of meeting federal budget-cutting goals. Premium supports
usually take into account some measure of the cost of
purchasing private coverage.
Romney hasn't released details on his Medicare proposal,
but it appears to most closely resemble the proposal of the
Bipartisan Policy Center's Debt Reduction Task Force, which was
chaired by Alice Rivlin, the Clinton Administration's budget
director, and former Republican Sen. Pete Domenici.
The Rivlin-Domenici plan would limit the government's
per-beneficiary financial contribution to a formula tied to
Gross Domestic Product plus a percentage point. In this sense,
Rivlin-Domenici really is more a voucher than a premium
2. Would privatization cut healthcare costs and shrink the
Vouchers would reduce federal Medicare spending by capping
benefit payments. But the assertion that privatization can
reduce overall healthcare costs is ideological; the argument
here is that unleashing competitive marketplace forces will
lead to innovation and cost savings.
Yet traditional Medicare has a much stronger record of
controlling costs than the private insurance market. As the
largest U.S. purchaser and regulator of healthcare, Medicare
has purchasing clout far beyond what any single private
insurance plan could exert.
An analysis of federal data by the Center on Budget and
Policy Priorities (CBPP) found that between 1970 and 2009,
Medicare spending per enrollee grew by an average of 1
percentage point less than private health insurance premiums,
or one-third less during that period.
Private Medicare Advantage plans have been gaining
marketshare, but they don't reduce federal health spending. In
fact, Advantage plans currently are reimbursed by the federal
government at 114 percent of traditional Medicare rates -- a
payment scheme that was put in place to encourage private
insurers to participate in the market and to help them compete
with traditional Medicare.(The Obama Administration's health
reform law freezes those payments Advantage calls for gradually
reducing those payments over a period of years, ultimately
equalizing reimbursements with traditional Medicare.) Medicare
Advantage plans also have benefited by marketing to healthier
seniors who are less costly to serve.
"Premium support is just another approach to privatizing
Medicare and moving away from the traditional fee-for-service
plan," says Edwin Park, vice president for health policy at
CBPP. "A lot of the arguments about lower cost and efficiency
in private plans just don't hold up."
3. Would seniors have to pay more out of pocket?
Yes. The Congressional Budget Office (CBO) estimates that
under the House-endorsed Ryan plan, the total cost of providing
benefits to a typical 65-year-old in 2022 would be $20,500. The
government would contribute $8,000 of that amount, with
beneficiaries paying the remaining $12,500 -- more than twice
what they would pay under traditional Medicare ($5,630).
The Rivlin-Domenici proposal hasn't been scored by CBO, but
if its voucher didn't keep pace with rising healthcare costs,
beneficiaries who want to stay in traditional Medicare would
have to cover the difference.
The alternative would be to enroll in a private plan with
lower premiums. But those plans might be allowed to keep costs
down by offering less generous benefits, restricting provider
networks or requiring higher cost-sharing via co-pays or higher
deductibles. Much would depend on the specifics of how new
rules and regulations would be drafted that govern the private
4. How are these proposals different from the current
Medicare Advantage program?
Medicare Advantage lets seniors opt for an all-in-one
private plan that covers hospitalization, doctors' visits,
drugs and other benefits. But the private plans must commit to
provide services at least equal to those provided under
traditional Medicare. Many of the new privatization plans would
permit variation in benefits and premiums.
5. Wouldn't these Medicare exchanges resemble the exchanges
being created under Obama's healthcare reform?
While there are some similarities, the exchanges under the
Affordable Care Act (ACA) would provide support designed to
keep up with health insurance inflation. Also, the ACA
exchanges are designed to cover millions of uninsured
Americans, while proposals like Rep. Ryan's actually eliminate
traditional Medicare over time, and force seniors to enroll in
The author is a Reuters columnist. The opinions expressed
are his own.