TL: How does Paul Ryan’s plan fit with what you once proposed? What about the value of the voucher under Ryan’s plans?
HA: One of Ryan’s plans would tie the value to consumer prices. Prices of most goods have risen more slowly than income and even more slowly than health costs. Under another of Mr. Ryan’s plans, the voucher would be tied to the same index that is already set as the target for Medicare in the health reform act, which Ryan proposes to repeal. That target is in the most recent proposal, of which Rep. Ryan and Sen. Wyden are co-sponsors. It contains some serious ambiguities and unfortunately, they have said they will not put the proposal into legislative language. As a result, it’s impossible to tell just what the rather vague, press release-style language really means.
TL: How will the Ryan-Wyden plan work?
HA: Starting in 2022, private insurers would be asked to bid on how much they would charge to offer benefit coverage as valuable for average people as that offered by Medicare. Everyone turning age sixty-five in that year or later who is eligible for Medicare would be given a voucher set at the second-lowest price offered in each geographic area. Recipients could use that voucher to buy private insurance or to buy into traditional Medicare coverage.
If enrollees chose a more costly plan, they would have to pay the diffierence themselves. If they chose a less costly plan, they could pocket the difference. The voucher would be reduced for upper income enrollees. People in Medicaid would continue to have protections offered by that program. Growth of the voucher would be capped at the rate of growth of income per person, plus one percentage point. Insurers would have to insure everyone regardless of age or health status.
TL: What will happen to the private market if vouchers come to pass?
HA: It will grow, but it’s not clear how much.
TL: You supported Medicare vouchers once. Have you changed your mind?
HA: I supported premium support with the protections that Bob Reischauer and I listed. But I always felt that simply dropping cash on the elderly and the disabled in an unregulated insurance market was a recipe for disaster. Given the current resistance to adequate regulation, no one is talking about the sort of premium support plan I once found attractive. But even if they were, times have changed. Now is not the time to be talking about massive and possibly disruptive changes for fifty million Medicare beneficiaries.
HA: A couple of reasons. First, the argument that premium support would lower costs seems to me much weaker than it did sixteen years ago.
TL: Can you expand on that point?
HA: There are comparative data on private plans versus traditional Medicare.
Private plans get a fourteen percent bonus to give extra benefits or lower premiums and less cost-sharing. Only a quarter of all beneficiaries have opted for these plans.
Even if one ignores these extra payments, the private plans cost more than traditional Medicare does.
TL: How much more?
HA: In urban areas, private plans cost twenty percent more than traditional Medicare and six percent more in rural areas. To date, private plans have not lowered costs.
TL: But we have a lot of competition in that market, right?
HA: There’s plenty of competition in the Medicare program. As I’ve said, most Medicare enrollees can choose among many competing private plans. If you think that competition will do the trick, it hasn’t done so yet. It could be that current Medicare rules discourage plans from competing on price and that private plans might lower prices under a different set of rules. But traditional Medicare has a big advantage. It has so many enrollees that it can dictate prices the way no insurance plan can. And it doesn’t have selling costs or need to generate a profit so that it can pay dividends to private stockholders.
TL: Are there any other reasons you have changed your mind about the wisdom of vouchers?
HA: The political climate has changed. In the mid-1990s, it was a different world in health policy. The Clinton health plan had just gone down and general health care spending was rising faster than Medicare spending. It seemed like vouchers might go somewhere. They were a chance to reform one part of the system. Today everything is different. Medicare spending is growing significantly less rapidly than private spending, in part because Medicare can set hard limits on how much it will pay for certain services and private plans in general cannot do that.