In the Republican presidential debate Monday, Mitt Romney came out in favor of a “premium support program, which allows people to buy either current standard Medicare or a private plan.” He said he supported the proposal made by Wisconsin congressman Paul Ryan, which, he believed, “is absolutely right on.”
“Give people choice,” Romney said. “Let competition exist in our Medicare program by virtue of the two things that I’ve described: higher benefits for lower-income people, lower benefits for higher-income people.” What is premium support anyway? So far, the mainstream media has done little to explain the concepts and terms being tossed around by politicians on all sides. Campaign Desk sat down with Henry Aaron, a senior fellow at the Brookings Institution, to sort all this out.
Trudy Lieberman: What is a voucher or a premium support?
Henry Aaron: It is a check from the government to a recipient for a single purpose, in this case paying for health insurance. In the case of Medicare, the check would have to be used in one of two ways. It could be signed over to an insurance company to buy private insurance. Or, if the plan allows it, the voucher can be returned to the government to pay for traditional Medicare. The voucher would cap Medicare’s growth in spending.
TL: How would this cap work?
HA: Suppose that Medicare costs $100 when the new program begins, and that Congress sets the value of the voucher at $100 and ties the future value to a formula that grows five percent a year. Thus, the value of the voucher will be $105 in the next year, whatever happens to the price of health care. The initial voucher allows Medicare enrollees to stay in traditional Medicare at no added cost. Or they can buy private insurance at the same price. If enrollees choose a more costly private plan, they have to pay all of the added cost themselves. If they choose a cheaper plan, they can pocket the savings.
TL: But what happens in the future?
HA: A critical question is whether enrollees will be able in the future to afford coverage as good as Medicare provides. If the cost of health care rises less than five percent, enrollees will continue to enjoy coverage with no loss of benefits. But if the cost of health care rises more than five percent, they will face a dilemma: suffer a progressively deeper loss of health insurance coverage or pay continually larger amounts for coverage that does not change.
TL: So how serious is the risk that coverage will erode or out-of-pocket costs will go up?
HA: That depends on the plan. If the voucher is tied to overall health costs, there is little or no risk. But under most so-called ‘premium support’ plans, the voucher is tied to an index that has in the past grown much more slowly than the cost of health care. That gap adds up fast, and can quickly erode coverage.
TL: What guarantees will there be that the voucher will keep up with health care cost inflation?
HA: Well, as I say, most plans are designed not to keep up with health care costs. But whatever formula Congress adopts at the outset, there can’t be a guarantee. Under pressure to hold down spending, Congress could restrict the voucher even more. Under pressure from beneficiaries, Congress might raise the voucher.
TL: But is there still a concern about what the adjustment formula is?
HA: You bet! When you set a rule, that becomes the status quo, and the status quo is hard to change.
TL: The term “voucher” is sometimes used interchangeably with “premium support,” a more benign phrase. Where did the term “premium support” come from?