The Great Cost Shift -- The Ryan Medicare Plan

Today’s Managing Health Care Costs Indicator is 68%

Paul Ryan (R-WI) released his Medicare and Medicaid reform plan last week, and it represents a sea change in approach to these rapidly growing entitlement programs.  I'm going to focus only on Medicare today.

Ryan would convert Medicare into a voucher program (he calls it "premium support," but it's really a voucher).  Seniors would get a federal subsidy that varied based on income or wealth, and would be on their own to purchase insurance in the "free market."  The vouchers would increase in value at the rate of the consumer price index, while health care expenses have historically increased at 3-4% or more greater than the CPI increase.  Therefore, seniors would go from personally paying 25% of the cost of Medicare under the current plan to paying 68% out of pocket under the Ryan plan.

Medicare as we know it would persist for those already on the program, and those 55 and over.   For those under 55, the requirement to save for post-retirement medical expenses would grow massively -- a special problem for a generation already without adequate savings for their projected expenses.

Government's worries about Medicare would diminish over time, as the "risk" for medical inflation would be passed directly on to the next generation of senior citizens.

There is a lot of talk about consumerism - and how Sadie will shop smarter and avoid unnecessary care when her dollars are at risk.   That's true - higher patient cost share leads to less utilization.  However, utilization of services in Medicare is not exceptionally high compared to other industrialized countries.  The problem we have is a problem of cost per unit.  The Ryan plan does..... nothing about this at all.

Further, we know already from US experience through the early 1960s that health insurers will not be eager to sell insurance to sick elderly people - just like they property insurers don't sell home insurance to those with houses on fire.  The exchanges envisioned in the Affordable Care Act (which Ryan opposes) could provide a way for elderly to purchase insurance - but without an individual mandate, such insurance would either require underwriting (excluding the sickest) or be so expensive that few could afford it.

Medicare is a behemoth designed by committee.  At its best, it has offered guaranteed access and dramatically decreased impoverishment of the elderly.  Its administrative fees are low, and it has driven quality reporting, quality improvement, and dramatic decreases in hospital length of stay through its payment policies.  At its worst, Medicare can be bureaucratic, is inept at fighting fraud, and has a payment system that encourages procedures and technology and disheartens primary care providers.

Ryan's plan is a potential game changer - in that it does threaten to take away guaranteed Medicare benefits, albeit for people who are only now reaching middle age.  It's gotten plaudits for making us think about the unsustainable cost of Medicare.

As a debating point, this is very helpful.  As public policy, the Ryan plan would lead to a substantial diminution of health, wealth, and happiness of the next generation of senior citizens.

And by the way - it would add more layers of administrative expense, and not save a penny in the health care system!

A few other takes on the Ryan Plan:
Ezra Klein
Alec Vachon (Former GOP Staffer via Kaiser Health News)
Robert Pear, NYT Analysis today