Heritage Foundation Analyzes Ryan's Medicare Reform Proposal

Contrary to what Obama and many Democrats are saying, Paul Ryan's Medicare reform proposal is not something without prior bi-partisan support. The basis for the plan comes from Congress's own plan that they speak of so highly. In addition, the proposal mirrors those of a number of bi-partisan commissions in past years. If Obama and the Democrats were not already in 2012 campaign mode, and were thinking of the health of the US economy and its people, they would use Ryan's proposal as a basis for putting Medicare on sound footing.

As with Obama's debt commission, politicians, after spending millions of dollars studying a problem, rarely follow through with meaningful legislation. Ryan and the Republicans in the House are attempting to instill substantive change in the process.

Excerpt: House Budget Committee Chairman Paul Ryan’s (R–WI) budget proposal for fiscal year 2012 would transform the Medicare program into a “premium support” system. Under the Ryan approach, the federal government would make a direct financial contribution to Medicare enrollees’ health care coverage, just as it does today for federal workers and retirees in the popular Federal Employees Health Benefits Program (FEHBP), the nation’s largest and most successful example of a premium support system.

The advantage of a premium support system is that it enables enrollees to apply the government’s contribution to the health plan of their choice, providing them a broad range of integrated health care options. This is in sharp contrast to the gap-ridden and inflexible benefit standardization of traditional Medicare, which encourages nine out of 10 seniors to seek costly supplemental coverage. Premium support would introduce intense competition in a consumer-driven market, which has historically slowed the growth of health care costs and increased patient satisfaction.

Walton Francis, a prominent Washington-based health care economist, writes that “the FEHBP has outperformed original Medicare in every dimension of its performance. It has better benefits, better service, catastrophic limits on what enrollees must pay, and far better premium cost control.”[11]
How the Ryan Proposal Improves upon the FEHBP
Chairman Ryan’s proposal would convert Medicare to a new premium support system starting in 2022.[12] The average government contribution would be based on the federal spending per capita in traditional Medicare.[13] Contributions would increase based on the consumer price index for urban consumers and would reflect the increasing age of the Medicare enrollee, taking into account the higher costs incurred by older retirees.[14] Like the Breaux–Thomas proposal, Ryan’s proposed contributions are much higher than those in the FEHBP. Also in contrast to the FEHBP, the contributions reflect the need for greater assistance to lower-income enrollees. While all seniors in the bottom 92 percent of all earners would receive the full contribution, those in the top 2 percent would receive 30 percent, and those within the top 6 percent would receive 50 percent. Low-income beneficiaries would receive contributions to a medical savings account estimated to be worth approximately $7,800 in 2022 as additional assistance.

Americans who turn 65 before 2022 would have the choice of remaining in traditional Medicare or participating in the new program.[15] Participants in the new program would receive a payment that could be applied to any health plan meeting the government standards through a Medicare insurance exchange. Plans would have to offer coverage to any Medicare beneficiary, regardless of pre-existing medical conditions.

One weakness of the FEHBP is that there is no risk adjustment to account for disparities among enrollees and plan costs. Ryan would add a risk-adjustment mechanism for health plans that have a disproportionate number of high-cost, high-risk enrollees. The Centers for Medicare and Medicaid Services (CMS), the agency that runs Medicare, would administer the risk adjustment to ensure that plans were appropriately compensated for their enrollees’ health risks.

Read full Heritage Foundation analysis of Ryan's health care proposal here.