By John McLaughlin
Much chatter today centers on the Ryan Medicare Plan, a proposal to reform Medicare first proposed by Wisconsin congressman Paul Ryan as part of "A Roadmap for America's Future" to guide the House Budget Committee under Republican Party control. Though hype and rhetoric surround the subject, little real understanding has seeped down into the public at large. Let's try to sort it out.
To understand where Ryan is heading, one must first understand the basics of Medicare. The current Medicare program provides single-payer medical care insurance for people 65 and over as well as people under 65 with certain disabilities or special medical conditions. It is composed of four parts: Hospital Insurance (Part A) covering inpatient hospital and specified skilled care; Medical Insurance (Part B) covering doctor services, outpatient care, and certain preventive services reimbursed at Medicare-approved amounts; Advantage Plans (Part C) providing Medicare Part A and B benefits through approved private companies under contract with Medicare; and Prescription Drug Insurance (Part D) providing reimbursements for prescription drugs purchased through private companies approved by Medicare.
Under this four-part program, enrollees choose from two basic options.
(1) "Original Medicare" (also called fee-for-service Medicare) offers Parts A, B, and D benefits for those wishing to select their own doctors, hospitals, and care providers with the option to also purchase "Medigap" insurance coverage sold by private companies to augment caps in Medicare reimbursements.
(2) "Medicare Advantage" provides Parts A, B, and D benefits through privately-administered healthcare plans requiring use of specified doctors, hospitals, and other providers under plan-specific co-payments and additional premiums.
It is becoming increasingly clear that, with the ever-growing number of seniors becoming eligible for Medicare, payment of benefits at current levels will become unsustainable. To correct for this problem, the controversial Patient Protection and Affordable Care Act ("ObamaCare") establishes an Independent Payment Advisory Board (IPAB). This special 15-member panel, to be appointed by the president with Senate confirmation for 6-year terms beginning in 2013, is intended specifically to reduce the rate of future per-capita spending on Medicare.
According to analysis of the ObamaCare legislation, if the Actuary of the Centers for Medicare and Medicaid Services determines that Medicare expenditures will exceed the target rate of growth specified in the law, the IPAB must develop proposals to reduce those expenditures. While legislation states IPAB proposals cannot specifically ration medical care, IPAB can issue recommendations pertaining to Medicare payments to providers and suppliers which could not help but have the same effect. To make matters worse, Congress specifically inserted wording allowing IPAB recommendations to take effect without congressional approval -- thus exempting elected representatives from making the tough choices needed.
Congressman Ryan recognizes an entire generation of Americans have planned their lives around the current Medicare program and realizes that any radical change would not be well-received by seniors who vote in large numbers. He also recognizes that no marketplace competition in healthcare exists. Providers are rewarded by government-established reimbursement rates based more on the quantity of healthcare procedures provided than on their quality or provider costs involved. Patients have little or no financial constraints limiting their choice of care. Such a system can only continue until it exhausts the available money.
Ryan seeks to reverse this impending cost disaster by instituting a new program beginning no earlier than January 2021 affecting only those aged 55 and younger. The plan has the following major elements:
- Part A and Part B trust funds are combined to create one unified trust fund. The new Medicare Program and the existing program continue to be financed by trust fund revenues, Medicare payroll taxes, and general revenue contributions as done now.
- By January 2021, insurance companies must establish competing healthcare coverage plans with specified benefits and limitations. Some would provide only high-deductible catastrophic coverage. Others could provide more liberalized coverage. Medicare would establish categories of generalized coverage. All plans which met specified requirements would become "Medicare certified" and eligible for premium payment cost sharing.
- Each patient would select from the approved list a plan best matching his or her expected healthcare needs for the coming year. Medicare would reimburse the health plan a fixed amount of money for each enrollee for premium payment support. If the Medicare-provided assistance exceeded the premium required for the selected plan, that excess would be credited to a "Medical Savings Account" (MSA) for the beneficiary's future use.
- Ryan currently estimates the reimbursement amount at an average $11,000 -- with further adjustment determined by income level. Higher-income patients would receive less premium assistance. Beneficiaries with annual incomes below $80,000 ($160,000 for couples) would receive full standard payment amounts; beneficiaries with annual incomes between $80,000 and $200,000 ($160,000 to $400,000 for couples) would receive 50 percent of the standard; and beneficiaries with incomes above $200,000 ($400,000 for couples) would receive 30 percent.
- After enrollment in a plan, all beneficiaries could, at their option, undergo an annual health "risk adjustment" examination. Results of this exam would be submitted to Medicare and become eligible for a higher risk-adjusted premium payment.
- To further assist those individuals with incomes near or below the poverty level, Ryan proposes additional payments above just premium support. While any enrollee, regardless of income level, would be able to set up a tax-free MSA if desired, the new Medicare Program would specifically establish and fund an MSA for low-income beneficiaries to help them with deductible payments required for care procedures. The amount paid to those below the government-established poverty level would be equal to the deductible for the average Medicare high-deductible health plan. Those with incomes at or 50 percent above the poverty level would receive 75 percent of the full deposit.
- Recognizing that Americans are becoming healthier than ever before and living much longer, Ryan further proposes that a phase-in of the start of the new Medicare program would, after 2021, be raised in a slow incremental fashion from the current age 65 to 69 years 6 months.
- As proposed, the Ryan Medicare plan resembles the Federal Employees Health Benefits Program (FEHBP). In the FEHBP model the government provides a set financial contribution each year. Employees and retirees have a variety of options, including catastrophic coverage plans with high deductibles, health maintenance organizations, and high-end plans with many choices of doctors and other providers. Everyone has a choice of at least 10 fee-for-service plans, but the exact number varies by where an enrollee lives.
The Ryan plan also resembles the health insurance model developed over the years in Germany. Under the German system, seniors choose insurance coverage from among a list of approved, competing nongovernmental "sickness funds" (Krankenkassen). Those insurers, in turn, pay for healthcare provided by private physicians and hospitals with beneficiaries and the government each paying a share of healthcare premiums.
A comparison with the German system reveals Germany achieves satisfactory healthcare at about one-half the per capita cost presently experienced in the United States, but also highlights similarities and differences between the two approaches:
In contrast to the rhetoric of Ryan-plan supporters, the German system does not achieve its results primarily by unleashing the forces of competition. In fact, both the German system and the Ryan plan explicitly prohibit one of the main forms of competition among insurance companies, namely, the use of experience rating, that is, the practice of differentiating premiums according to demographics, health status, past health care use, and similar factors. Experience rating in health insurance leads to "cherry picking," in which insurers compete to lower their premiums by excluding all but the healthiest customers. Under such a system, the very elderly and those with chronic illnesses are likely to find that insurance is unaffordable or completely unavailable.
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