Premium Support: Don’t Go There

November 8th, 2011 at 4:18 pm

So, I see the Mittster is trotting out a premium support idea for heath care reform.  This is the one where instead of guaranteed health coverage, as under the current Medicare program, participants get a fixed amount to shop around for a private insurance plan.  Rep Paul Ryan introduced a version of this in the House Budget, but Gov Romney adds the wrinkle that you can opt to stay in Medicare:

Mr. Romney’s proposal would give beneficiaries the option of enrolling in private health care plans, using what he, like Mr. Ryan, called a “premium support system.” But unlike the Ryan plan, Mr. Romney’s would allow older people to keep traditional Medicare as an option. However, if the existing government program proved more expensive and charged higher premiums, the participants would be responsible for paying the difference.

My colleague Paul Van de Water provides a useful summary of the issues invoked by moving to a premium support plan.  He points out that Henry Aaron and Bob Reischauer, two guys for whom I have a lot of respect, once suggested their own version on premium supports, but there are important differences:

Aaron and Reischauer…did not seek to use premium support to achieve big savings in federal health care spending. They were focused, instead, on encouraging people to choose insurance plans that matched their preferences and making people more responsible for the financial consequences of their choices. Chairman Ryan and other leading proponents of premium support, however, clearly view it as a tool to achieve major savings in federal health care spending over time. That’s only one of the major differences between the original concept and recent leading proposals. In fact, recent proposals are so different from the original Aaron-Reischauer concept that Aaron no longer supports the very idea.

Note the last sentence in the NYT quote above, about participants paying the difference.  That’s cost shifting, not cost savings.   It’s easy to design a health care plan that shifts costs onto beneficiaries: just give them a voucher whose value doesn’t rise with the cost of health care spending.  They’ll either kick in their own money, if they can afford it, or they’ll go without.  Problem solved, except for people who can’t afford the health care they need.  Cue Tea Party cheers.

You don’t see a lot of people changing their mind about stuff in this town, so it’s worth taking notice when someone does so, as Aaron did re premium support (see box on pg 6 of Paul’s report):

“[C]urrent proposals are not premium support as Reischauer and I used the term.  …I now believe that even with the protections we set forth, vouchers have serious shortcomings. Only systemic health care reform holds out real promise of slowing the growth of Medicare spending. Predicted savings from vouchers or premium support are speculative. Cost shifting to the elderly, disabled, and poor and to states is not. Medicare’s size confers power, so far largely untapped, that no private plan can match to promote the systemic change that can improve quality and reduce cost.”

Two more points.

First, Aaron mentions the loss of bargaining power when people opt of Medicare.  I also worry about adverse selection.  Chances are the sickest would be left in the government program and that would lead to a further unsustainable cost burden.  (Some will argue that you can “risk-adjust” the vouchers to take account of such differences but the track record suggests you can’t reliably do so.)

Second, one must always stress the TM point here (TM=a friend who’s known to rant about this).   For all this excitement over “choice,” you’re not choosing your provider—i.e., your doctor or hospital–through premium support the way you do under Medicare.  You’re choosing your insurer.  Your insurer will then determine your provider network, and you can bet that network won’t be as wide as that of Medicare.

We don’t need a more fragmented health care markets, with a bunch of elderly people trying to figure out which insurance providers offer the best deal…Medicare is already a great deal.   The problem is that, even while its costs grow more slowly than those of the private sector for comparable services (see Figure 1 in Paul’s paper), they’re still growing too quickly, such that every year we’re spending a larger share of our economy on health care.  Cost shifting through premium support only shifts the burden to the less efficient private sector.

The solution involves the types of reforms in the Affordable Care Act: pooling disparate groups together to boost their bargaining clout (the exchanges), expanding Medicaid coverage, extending the solvency of Medicare, and setting up mechanisms for evaluating cost effectiveness.  It’s this latter mechanism—whose teeth are way too dull in the ACA, btw—that may be most essential to bringing health costs down and quality, not quantity, up.


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3 comments in reply to "Premium Support: Don’t Go There"

  1. cat says:

    “I also worry about adverse selection. Chances are the sickest would be left in the government program and that would lead to a further unsustainable cost burden.”

    The privitization forces don’t see adverse selection in Medicare as a risk, they see it instead as one of the levers to discredit Government run social safetynet programs.

    You can’t explain adverse selection in a sound byte, but you can dishonestly blame government mismanagement for the fact the per patient costs of medicareparticipants are higher then private insurance patients in a soundbyte.

    Any of these plans that fragment the senior health care insurance market will lead to a net increase in spending by seniors on their healthcare just like Medicare Part D costs more then it would if it was run by the government.

  2. ReaderOfTeaLeaves says:

    For me, the conversation we should be having is related to public goods vs private goods. (I’m of the view that the GOP overall does not have a good conceptual model for public goods, which complicates policy discussions.)

    Why is most US healthcare for profit?
    If I buy a pair of shoes, my ‘shoeness’ does not give anyone else a new pair of shoes.

    If someone coughs on me, I might OTOH get ‘sickness’.
    Presently, I know of what I speak. Wretched, mean viruses have infected me, and appear to be breeding by the hour.
    Shoes and cans of cat food do not replicate in this same way, which makes a market a good way to buy and sell these commodities.
    Flu shots can be bought and sold, but having supposed that I still had weeks to get one, I foolishly delayed.

    If I fail to get shoes next week, other people having new shoes does not affect me.
    This is not true for flu shots 8>\

    The fewer people covered, the greater risk for all of us.
    If you don’t believe we are all connected, then market driven health care and it many variants, cost shifts, and fretting over plans makes sense.
    If you believe that at some level, we are all connected, then one rethinks fundamental paradigms.

    With expect to costs, this year (so far) I have been billed $30,000+ for care related to a broken limb.
    That is about the eqivilent of two years fees and tuition at a public university in my state.

  3. Jill SH says:

    “Chances are the sickest would be left in the government program”… Let’s realize that the government already covers those most at risk for high needs health care: the elderly (Medicare), the extreme poor (Medicaid) and the military. The government leaves the healthy working age groups for the private health insurers to cherry-pick. When you included all those public sector workers at federal, state, and local levels, tax dollars are already covering about 60% of the population.

    In all this brouhaha over mandates and choice, I’m thinking that I should have a right to buy into a public plan, esp. Medicare. “You’re not choosing your provider…You’re choosing your insurer.” In Medicare, I get to choose my doctor!

    Can we move away from insurance-speak when talking about healthcare costs? We need to talk about what people can afford to pay in to support the health care system. F’rinstance: family w/ 2 kids that cobbles together $45k/year through various jobs, some part-time, none with health benefits. Family policy costs $15k, maybe w/ $2k deductible (we’re talking individual market here, no guaranteed issue!). Do we really expect this family to spend over 35% of their pre-tax income on health care? And if this is a working family, they are paying FICA-Medicare/Medicaid taxes, state and local sales, property, and gas taxes (at a minimum) which all support the health care of OTHER PEOPLE! The travesty is that this family is not automatically included!

    The working poor will only have so much that they could afford for health care — insurance and/or out-of-pocket combined — and we should start there.

    Can we get to a point where we talk about how much AS A PERCENTAGE of INCOME we expect any individual, family, or small business to contribute to the health care system, rather than “Who’s going to pay the difference, subsidize that premium, whatever, for the insurance coverage?” Or the corollary: get the EHB package to an “affordable” price point.

    I would love to see a proposal where anyone, especially those at low and moderate income levels, or the 50- and 60-somethings who have hit long-term un/underemployment, could buy into Medicare for a percentage (8%?) of whatever they are making, and be included, and get the health care they need that will keep them healthy, active, and working.

    Who knows, might even bring in a modest amount of new revenue from a moderately healthier population!