Question and Answer on Wyden-Ryan

Published December 16, 2011

House Budget Committee Chairman Paul Ryan’s staff was kind enough to take the time to go through my questions posed to them. Here is the Q&A that results – they correct me on several points, though there are still several remaining tactical concerns I have about this approach. But let’s allow these answers to stand by themselves:

1. Solvency. The CMS Actuary says that Medicare is going to be insolvent in 2016. CBO says Medicare is insolvent in 2020. Your plan doesn’t truly kick in until 2022. How exactly does this help?

The solvency of the Hospital Insurance Trust Fund (which only pays for part of Medicare) should be shored up prior to 2020 (CBO’s estimate of insolvency) and 2024 (CMS Trustees’ estimate of insolvency) by taking common-sense steps that fall short of structural reform, e.g., means-testing premiums, etc.

Other reforms to the traditional Medicare fee-for-service system that will help shore up solvency include combining Medicare Parts A and B deductibles and creating a new catastrophic cap to limit out-of-pocket spending.

The key challenge is putting Medicare on a sustainable trajectory going forward.  That is exactly what this effort successfully achieves.

2. The biggest difference with your original plan is that seniors would have a choice between staying in traditional Medicare, or opting into new private plan alternatives purchased through a federally regulated exchange. You say this will “Ensure a sustainable future for Medicare.” Why do you have confidence that the conservative base will accept what is essentially doubling down on Medicare Part D? And given that this idea was also in Rivlin-Domenici, can you explain how this new plan is any better, or any more conservative, than that plan?

Your question makes a faulty assumption: an open-ended unsustainable system would not operate alongside an optional premium support framework.  A traditional Medicare fee-for-service option would operate within a premium support framework.  This Medicare fee-for-service plan would be forced to compete alongside private options within a fundamentally reformed program.  Just like in the House-passed budget, seniors would receive a fixed amount and be allowed to chose from a select set of Medicare-approved plans.  A difference with this bipartisan effort is that one of the Medicare-approved plans would be a Medicare fee-for-service option. The financing for all options is the core reform, maximizing the power of the senior and the benefits of choice and competition.

This is also fundamentally different from Medicare Part D in 2 ways: 1) This effort does not increase the deficit – in fact, it directly addresses the primary driver of the debt and makes possible a fiscally sustainable future, and 2) this effort does not create a new entitlement and add it to a broken system – in fact, the proposal reforms the existing program and puts it on a sustainable path for future generations.

3. One of the chief criticisms of the public option was that the anti-market administration/bureaucracy would inevitably game the system in order to favor the government option. In allowing the private sector to compete with traditional Medicare, won’t this happen again? Why not? The Breaux-Thomas plan involved an independent non-CMS entity to be in charge of this, but your plan puts CMS in charge of it all. Why should we not be concerned by this?

Under this effort, the way it would practically operate is: CMS would be responsible for managing the Medicare components (e.g., risk adjusting, actuarial value, bid approval) and OPM would be responsible for Exchange management (e.g., regulations, information distribution, compliance).  As stated earlier, the Medicare fee-for-service option would operate inside the Exchange.  The competitive bidding process that forces the Medicare fee-for-service option to compete against private plans is both what controls health care costs and prevents Medicare from gaming the system.

Also – this gives providers a measure of flexibility they have never had before.  Rather than being forced to take provider rates as dictated by Medicare, they would now be free to accept contracts with private plans.  The federal government would no longer be able to monopolize this market, and plans would now compete to attract consumers. 

The fundamental shift is that the patient and the doctor would become the nucleus of the system.  Insurers and providers would compete for the consumer’s business, as opposed to continuing to lobby Washington for a more favorable reimbursement rate.

4. You anticipate that consumers will make choices to drive insurers and Medicare to be more efficient and more price conscious, driving down Medicare spending. If this doesn’t happen at below nominal GDP growth plus 1 percent, you bring Congress into the picture to “offset an increase in the cost”. Combine that with the fact that this plan retains the Independent Payment Advisory Board, and together you’re putting a lot of stock in the political courage of future elected officials. But doesn’t that create a similar problem to the “doc fix”, keeping your fingers crossed that future Congresses will act responsibly? Won’t this set up a rationing conflict where Congresses continually respond to the demands of Medicare constituents, resulting in no meaningful decrease in spending?

Chairman Ryan has been explicit in his vigorous effort for a full repeal of the President’s health care law, including IPAB.  This plan very clearly requires Congress, not IPAB, to act if the competitive bidding process fails to keep growth below that cap.

But if you share the view that true choice and competition are the core elements of ensuring that costs go down and quality goes up, then this question on the cap lacks relevance.  Health care cost growth over GDP+1% is unsustainable, not just for Medicare but economy-wide.  There is no disagreement on the need to ensure that Medicare grows at a more sustainable rate. The question is: How?  The President prefers to empower a board of bureaucrats in Washington to impose price controls to keep Medicare spending below GDP+1% (and has called for twisting screws further to GDP+0.5%).  This bipartisan effort empowers patients with more choices and forces insurance companies – including a Medicare fee-for-service option – to compete against each other for the patient’s business. 

5. There is no means-testing of Medicare benefits in this plan, even though this idea is widely supported by Democrats and Republicans. At the moment, roughly 60,000 Medicare Part B enrollees have modified adjusted gross incomes of $1,000,000 or more. Is means-testing no longer bipartisan, or have you moved away from it as a priority?

Please review the section of the proposal titled: “More Support for Low-Income Seniors and a Reduced Subsidy for High-Income Seniors.” This plan is rooted in the idea that more support should be given to the sick and the poor to secure health insurance, while wealthier seniors should receive less help.  To achieve that goal, the Wyden-Ryan proposal applies the high-income means-testing thresholds that exist in current law for Parts B and D to the reformed Medicare program.  This ensures that certain high-income seniors would pay an increased share of their premiums. Moreover, further means-testing is explicitly laid out as an option for Congress if cost growth exceeds GDP+1%.

6. You deploy a competitive bidding model that picks the second cheapest plan. But it doesn’t appear to account in any way for market share? Couldn’t you end up with a winning premium bid which has as little as a half a percent of the marketplace? And given that this approach is largely untested, won’t such an approach lead to severe instability and churn in the marketplace?

Regional bidding would address this problem.  Much like how bidding works for the Medicare Advantage program now, plans would bid within a certain region.  A plan could end up with a winning bid that had a smaller market share, but it would be offered within a specific region.  Also, because the Medicare fee-for-service option would continue to exist in every region, beneficiaries would always have an available, affordable option.

7. Your plan includes a “free choice option” which allows some small employers to offer their employees a cash-out for their health coverage. But in your own critiques of the Fiscal Commission, you said repealing the tax exclusion would only “accelerate the expansion of Obamacare.” Doesn’t the same rule apply to employers with 100 people or fewer? Without first getting rid of Obama’s health care law, doesn’t this exacerbate the problem of employers dropping coverage and shifting people into the taxpayer subsidized exchanges?

Chairman Ryan plans to keep working vigorously for a full repeal of the President’s new health care law. He outlined his vision for reforming the tax treatment of health care in a speech at Stanford’s Hoover Institution [ed note: shout-out!] in September.  Ryan envisions individuals being able to take the money provided by their employer to purchase health insurance in a reformed individual market.  Additionally, individuals should be able to buy an insurance policy that they can keep throughout their lifetime.  De-linking the tax treatment of health insurance from employment will help ensure a smoother transition into Medicare program for this very reason.

8. A practical question: after making the case for bold reform, what is gained by moving backwards without an intervening election? How would you respond to the obvious criticism that this plan is far more modest than what Republicans courageously banded with you to support earlier this year – that it is not real entitlement reform, at least not for another decade?

This efforts marks a critical step forward in establishing a bipartisan consensus for real entitlement reform.  It is completely in line with premium support reforms for Medicare as advanced by Chairman Ryan over the years (e.g., Roadmap I in 2008, Roadmap II in 2010, Rivlin-Ryan offered to the Fiscal Commission, the FY2012 House-passed budget).  Chairman Ryan remains grateful to his friend Senator Ron Wyden for his leadership on strengthening Medicare and advancing the reform agenda needed to get America back on track.

I’ll have some more thoughts on these answers shortly. My thanks to Ryan’s team for being so responsive.