Neither the Republicans Nor the Democrats Want to Face the Provider Cost Problem

A key piece of Paul Ryan’s deficit reduction plan is to change Medicare as we know it. It appears his bold Medicare premium support proposal is failing to gain traction–it is dead as part of any deficit reduction deal this year. Worse, his Medicare proposal looks to be giving Democrats lots of political ammunition for the 2012 elections.

What lies at the heart of Ryan’s Medicare difficulties is that he would all but abandon future seniors (those now under age-55) to a health care system whose age-adjusted premium support would increase each year only at a rate equal to the increase in the consumer price index while their health care costs would likely continue to increase far faster.

Simply, Ryan just shifts the future burden of uncontrolled Medicare health care costs from the federal government to the senior. That will solve a big part of our federal deficit problem but hardly help people.

Yes, he offers a defined contribution health care solution with the promise of invigorating the markets and making costs lower. But we have had a form of Medicare premium support and private competition for years (Medicare Advantage) and there isn’t a lot of evidence the market can get the cost control job done on its own. (See: Defined Contribution Health Care—The Conservatives’ Silver Bullet)

The Democrats have had a field day scaring people over the Ryan proposal because, quite frankly, the Ryan plan gives them a lot of legitimate ability to do so. I guess the definition of a terrible policy proposal is one your opponents can successfully attack without having to mislead people.

But Ryan isn’t the only one guilty of trying to put consumers into a health care system that limits federal spending by shifting the excess cost burden from the government to the consumer.

I call your attention to Jim Capretta’s recent column at Kaiser Health News. Here is a key paragraph:

Ryan’s critics have focused particular attention on his plan’s indexation of the Medicare “premium support credits” to the CPI in the years after 2022, suggesting that this idea is somehow beyond the pale. But this is sheer hypocrisy on their part because the indexing of government-financed premium credits below cost growth is in the president’’ plan too, and yet not a complaint has been heard about that from its advocates. That’s right. After 2018, if the aggregate governmental cost of premium credits and cost-sharing subsidies provided in the state-run exchanges exceeds about 0.5 percent of GDP (a condition that the Congressional Budget Office says will be met), the recently-enacted health law requires the government’s per capita contribution to health plan premiums in the exchanges to rise more slowly than premiums. The administration actuaries interpret the law to mean that the government’s contributions toward coverage will rise with GDP growth after 2018. CBO appears to have a different interpretation. Still, under all interpretations and projections, it’s clear that the exchange credits in the new law will not keep pace with expectations of rising health costs. And that’s exactly what the president is now saying is so wrong with Ryan’s Medicare plan.

In fairness, Capretta also makes the broader point that he believes the Ryan plan would create the rigorous competition Medicare needs to control costs.

But in my mind, the real issue here is that both Ryan and the Democrats have made the same mistake.

Both are mostly avoiding the fundamental health care problem in the first place—chronic escalation in costs much higher than either GDP growth or the consumer price index. Neither side has offered a bold plan designed to change the current fee-for-service provider payment incentives that just keep fueling these unaffordable costs. Neither side seems either willing or capable of taking on the provider.

But both are willing to control future federal spending by dumping the excess health care cost problem on the consumer.

I don’t think we are going to have a real health care debate in this country until the voter/consumer/patient comes to understand the long-term threat they face from health care costs that show no sign of abating and they demand that the politicians aim for a solution not on their backs but on the backs of the people sending them these bills.

Robert Laszweski has been a fixture in Washington health policy circles for the better part of three decades. He currently serves as the president of Health Policy and Strategy Associates of Alexandria, Virginia. Before forming HPSA in 1992, Robert served as the COO, Group Markets, for the Liberty Mutual Insurance Company. You can read more of his thoughtful analysis of healthcare industry trends at The Health Policy and Marketplace Blog, where this post first appeared.