Representative Ryan’s Reform Plan

It’s not termed as such, but the 2012 Budget Resolution authored by House Budget Committee Chair Paul Ryan includes the most comprehensive effort so far to define a conservative Republican health care reform plan.

Representative Ryan proposes to attack the federal government’s ever-escalating expenditures on health care by repealing major sections of the Accountable Care Act and by making fundamental changes in the financing of Medicare and Medicaid. Medicare would become a quasi-voucher “premium support” program, with government contributions dependent on age and beneficiary income, as well as being modified to increase the age at which seniors become eligible. Medicaid would be transformed into a state block grant program and the expansions included in the ACA would be rolled back, as would the individual mandate, the requirements for insurance exchanges, and the subsidies for lower-income exchange enrollees.

On the one hand, Representative Ryan’s proposal offers an aggressive approach to cutting the federal deficit. On the other hand, it does so primarily by shifting costs from one payer—the federal government—to others—seniors, low-income individuals, and states. If there are resulting reductions in overall health care expenditures, they may come mainly from the inability of the new payers to afford coverage.

Unsurprisingly, the proposal has immediately come under fire from Democrats, seniors’ organizations, and provider groups. Although it stands no near-term chance of passage in the face of opposition from a Democratic-controlled Senate, Representative Ryan’s proposal should not be written off. The Medicaid recommendations will be welcomed by many state governors—struggling to reconcile federal benefit mandates with budget-squeezed state funding—as offering the chance to craft more affordable eligibility and benefit rules. The Medicare premium support approach is consistent with that recommended in 1999 by the bipartisan National Commission on the Future of Medicare (but quickly discarded by congressional leaders as too much of a political hot potato).

Representative Ryan also has attempted to finesse seniors’ reactions by phasing in the Medicare changes so that neither the increase in eligibility age nor the premium support plan would affect any beneficiaries for at least ten years.

While the impact of the Medicaid block grant proposal cannot be evaluated without knowing how states might choose to run their programs, there are existing models for the Medicare premium support proposal. Both the Federal Employees Health Benefit Plan and California’s CalPERS (as well as other state employee programs) take similar approaches. CalPERS in particular is regarded by many health care economists as an exemplary competition model, in which a fixed employer contribution is applied to enrollees’ choices from a limited number of health plans offering similar benefits.

However, unlike CalPERS, FEHBP, or the 1999 Medicare Commission’s recommendations, Representative Ryan’s proposal could require very significant beneficiary contributions. CalPERS employer contributions are typically between 90 and 100 percent of the cost of the lowest priced plan, while the Medicare Commission’s recommendation was for an average government contribution of 88 percent of premium. In contrast, the Congressional Budget Office analysis of Representative Ryan’s proposal projects that by 2030, it would result in the average 65-year-old beneficiary paying 68 percent of the total of premium plus cost-sharing (deductibles etc).

Perhaps the biggest problem with Representative Ryan’s approach is that it fails to recognize the “water bed syndrome” of health care costs, in which squeezing costs in one area causes increase elsewhere: reducing Medicare and Medicaid expenditures may be good for government budgets, but—absent even more sweeping changes—may simply result in increased cost shifting to the private insurance market.

Representative Ryan’s Budget Resolution is a much more conservative proposal than that included in his earlier Roadmap for America’s Future. In comparison, the Roadmap—originally published in 2008, with later revisions—differed in two very significant ways: it increased federal control over Medicaid, while giving eligibles credits and subsidies to purchase private insurance; and it replaced the tax exclusion for employment-based insurance by a refundable tax credit for the purchase of coverage, either through an employer or on an individual basis. While it is certainly possible to quibble with the details, these features could have achieved the mainstreaming of Medicaid eligibles into the general health insurance system, and provided the same incentives for cost-conscious purchasing for the larger employed population as for FEHBP and CalPERS enrollees. Applying similar enrollee-choice premium support principles to each of Medicare, Medicaid, and private insurance could have gone a long way to eliminating the inter-program inequities that result in cost shifting.

Whether or not Representative Ryan’s change of direction reflects the increasingly conservative Tea Party-driven philosophy of his party or not, it’s disappointing to see worthwhile ideas being abandoned. A more balanced Roadmap-based Budget Resolution proposal might have received the serious consideration it would have deserved.

Roger Collier is a former CEO of a large consulting firm. He writes about health care reform at Health Care Reform Update

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