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Ron Wyden, Paul Ryan, and the Future of Medicare

Senator Ron Wyden has an unofficial fan club and I consider myself a charter member. I joined in late 2006, right after the midterm elections, when a newly energized Wyden introduced a serious proposal for universal health care. The idea was elegant -- in many ways, a policy wonk's dream. And while it never became the template for reform, it had a catalytic effect on the debate. If not for the political conversation that Wyden's proposal started, the Affordable Care Act might not exist today. 

I suspect Wyden is trying to reprise that role now, with a new proposal he unveils Thursday. But this time Wyden is focusing more narrowly on reforming Medicare and reducing deficits, rather than reinventing the entire health care system from scratch. Wyden is a true believer in bipartisanship and his 2006 bill reflected that: Its co-sponsor was Senator Robert Bennett, a thoroughly conservative Republican from Utah. The new Medicare proposal also comes with a Republican endorsement, but it's an even more unlikely one: House Budget Chairman Paul Ryan.

Yes, this is the same Paul Ryan who, less than a year ago, introduced a radical plan that would have eliminated the traditional government Medicare insurance plan altogether. In its place, Ryan envisioned a voucher scheme with competing private plans – one in which the government no longer guaranteed all seniors could get comprehensive coverage at affordable prices. Critics called it a scheme to end Medicare as we know it. Ryan and his allies bristled, but the description was accurate. 

The plan Ryan and Wyden will unveil formally on Thursday is less radical and less threatening to seniors. It also starts with a voucher scheme but, at least on paper, it would preserve traditional Medicare as an option. 

And that's not the only difference. Ryan’s original proposal called for the government to spend far less money on the elderly. That was its chief source of budget savings and a major source of danger: Seniors would end up individually responsible for a dramatically larger share of their individual medical expenses. The new Wyden-Ryan framework does not call for these severe reductions in spending, theoretically sparing seniors the hardship Ryan's old proposal would have unleashed. 

But if the Ryan-Wyden plan improves upon the original Ryan plan, does it also improve upon Medicare? Would seniors really be better off? Would the government save a lot money? I think the answer to all three questions is no.

The Ryan-Wyden plan is the latest twist on an idea called that wonks call “premium support.” Today, most seniors enroll in the traditional government insurance program. Those who want other options are free to shop around for alternatives through what’s known as the “Medicare Advantage” program, in which private insurers make available regulated insurance policies. Under a premium support system, all seniors would shop around. The government would simply issue every person over 65 a voucher (at least in the figurative sense). In most schemes, seniors would pay extra for joining plans that cost more than the vouchers and receive rebates for joining plans that cost less than the vouchers. 

Some advocates for premium support claim it would save money because private plans are inherently more innovative and efficient than old-fashioned, government-run Medicare. Not to be blunt, but the evidence for this is non-existent: Medicare has lower overhead, enormous economies of scale, and the ability to keep down costs by dictating prices to the providers of care. (Conservatives may not like that last part, but purely in terms of lowering prices it's quite effective.)

Other advocates for premium support suggest it would save money because seniors, by shopping around for the best deals, would spark competition among plans while forgoing more generous coverage when more limited benefits would do just fine. This is a more plausible theory, although it remains an unproven one. Among other things, some of the most promising ideas for making health care less expensive depend upon greater coordination and continuity – that is, making sure patients keep seeing the same set of providers, over a lengthy period of time. That’s particularly true for seniors who, because of their age, have more serious and chronic conditions. The more seniors jump from plan to plan, the more fragmented their care becomes.

Because of this, many defenders of Medicare would say the program needs no structural changes at all, at least for its own sake – that it already controls costs better than private insurance and that, thanks to payment changes coming via the Affordable Care Act, it will control costs even better in the future. They have a strong case. At the same time, Medicare's defenders would argue, introducing a premium support scheme jeopardizes the program's integrity. And, again, they have a strong case.

Remember, Medicare is a guarantee – a compact, really. In exchange for paying into the system during their working years, all Americans receive a promise of comprehensive health benefits once they turn 65. It’d be possible to preserve that guarantee in a premium support system, but it would not be easy. Just for starters, you'd have to make sure the value of the voucher kept up with health care costs -- and then regulate the benefits in ways that forced insurers to compete on price and quality.

Would the Wyden-Ryan plan accomplish that? Wyden swears it would. “I start with the proposition that, for millions of seniors and soon-to-be seniors, Medicare is the most important fiber in the social safety net,” Wyden told me in an interview on Wednesday afternoon. “I would never do anything to shred it, or weaken it, or harm it in any way.” Wyden seems utterly sincere about this. But the policy provisions to back up that vow are not in the paper he and Ryan make public on Thursday. 

Mostly the document is just too vague: It promises, for example, to limit out-of-pocket expenses for poorer seniors. But limit by how much? And how many people qualify for that protection? And the specifics, to the extent they exist, are not so reassuring. A major safeguard for seniors, which Wyden cited, is the guarantee that all private plans competing for seniors offer coverage that is actuarially equivalent to the traditional Medicare plan. This is surely a stronger guarantee than the old Ryan plan provided. But actuarial value is a fairly crude instrument, as Boston University's Austin Frakt noted recently as part of a series of posts about premium support

Without more regulation of benefits, it’s just too easy for insurers to manipulate what they offer in ways that will allow them to avoid the sickest beneficiaries. The plans would be "competing with other plans, but not in a way you'd like," Frakt wrote. That’s just one reason the scheme would be prone to adverse selection, with healthier patients flocking to cheaper private plans and sicker ones remaining in traditional Medicare, until the old program became financially unsustainable. And that, in turn, is just one of the many perils this sort of system would risk. (For a full accounting, I'd highly recommend Paul Van de Water's briefing paper from the Center on Budget and Policy Priorities.)

Under the best of circumstances, the Wyden-Ryan plan would look like the coverage scheme that the Affordable Care Act will make available to people under 65. The Wyden-Ryan plan, in an implicit nod to the parallels, even calls its proposed marketplace for insurance a “Medicare exchange.” And it's fair to suggest, as Ezra Klein does in Wonkbook this morning, that by embracing this model for Medicare Ryan has implicitly embraced the philosophy of the Affordable Care Act.

But are these "the best of circumstances"? You may have noticed that one house of Congress has voted to repeal the Affordable Care Act and is busy trying to undermine the law in any way it can. How realistic is the prospect that this same Congress would be willing to recreate that law for people over 65? How much can faith can we place in the policy priorities of Ryan, who has been at the forefront of these efforts? I’d trust Ron Wyden to pull whatever levers it takes to make this plan work. I wouldn’t trust most of his colleagues, particularly those on the other side of the aisle.

A grand compromise is easy enough to imagine. It's one that wonks have been talking about a while, over coffee and on e-mail and occasionally on twitter. In this compromise, Democrats would go along with transforming Medicare into a premium support system, the kind conservatives have long coveted. In return, Republicans would drop their objections to the Affordable Care Act and open up Medicare to people of all ages, effectively turning it into the public option liberals have sought all along. The end result could be a seamless, competitive insurance market for people of all ages, but with a strong public option upon which young and old alike could depend. 

But nothing like that will happen until both sides are willing to make an equal sacrifice. They clearly aren't yet. Wyden is embracing premium support and, in the process, lending respectability to Ryan and the House Republicans. Ryan although distancing himself from his former proposal, still isn’t coming to terms with the Affordable Care Act. That’s been the story for a while now: Democrats are more willing to compromise than Republicans. Until that changes, Democrats make concessions at their own peril and with great risk for their constituents. 

Wyden has first-hand experience with Republican intransigence. When he introduced his universal coverage plan in late 2006, the political environment was different. Bipartisanship seemed possible. The Republican opposition was less extreme. But that was before Obama’s election and the decision, by leading Republicans, to make defeating him their top priority. Poor Bob Bennett paid the price: Conservatives in Utah, unable to get past his cooperation with Wyden, denied him the chance to seek reelection. Now he's out of Congress.

Wyden obviously believes it remains possible to reach across the aisle – and that this plan, at this time, can begin a constructive discussion between the parties of how to shore up Medicare. I just don't see it.

[For more on the Wyden-Ryan proposal, see Aaron Carroll and Igor Volsky.]