Presidential candidate Mitt Romney’s reform plan for Medicare is just as cautious―and carefully vague on some key details―as might be expected from an politician famously sensitive to the winds of public opinion.
Romney’s proposal looks a lot like those offered by last year’s Rivlin-Domenici Debt Reduction Task Force and the 1999 National Bipartisan Commission on the Future of Medicare. Like those proposals, and also the plan offered by House Budget Chair Paul Ryan, Romney’s would convert Medicare into a premium support program in which beneficiaries would receive a fixed contribution towards the cost of coverage. However, unlike Ryan’s plan―received so negatively by seniors that it cost Republicans a House seat―beneficiaries would still have traditional fee-for-service Medicare as an option.
Under the Romney proposal, commercial insurers would compete with traditional Medicare in offering a basic set of benefits. Beneficiaries would choose from a “menu” of plans, paying out-of-pocket for any difference between the premium and the federal support contribution. Lower-income individuals would receive larger premium support amounts, while beneficiaries selecting options with premiums below the support amount would keep the savings. Also, as with the other similar proposals, there would be a gradual increase in the Medicare eligibility age from today’s 65 years.
Although it was immediately attacked by various liberal commentators, the Romney proposal seems on the surface to be a reasonable approach to a program that otherwise is headed for bankruptcy. How reasonable, however, will depend on numerous details that have been carefully left vague. (Interestingly, the proposal is nowhere mentioned on candidate Romney’s campaign web site.)
The biggest omissions are the amount of the federal support contribution and the rate at which it will increase. While the Ryan proposal called for tying increases to the CPI, something that guaranteed that beneficiaries’ out-of-pocket premium spending would increase every year, Romney supposedly is still considering the issues of both the initial contribution and its subsequent indexing.
Other details left unspecified include how adverse selection might be dealt with, whether commercial plans would be able to offer additional benefits (as with the current Medicare Advantage program), what latitude traditional Medicare would have in controlling its costs, and how fast the eligibility age would increase.
The history of Medicare Advantage suggests that most commercial plans will have higher premiums than the traditional FFS program, but that major HMOs and a few PPOs may be less costly. The effect of the premium support approach would presumably be migration to these “better value” plans, but possibly limited by available capacity and plans’ concerns about adverse selection. The experience of Kaiser, which suffered financial losses when it was overwhelmed by new enrollees after offering premiums significantly below competitors,’ may deter some of the competitive pricing that Romney is hoping for.
Almost certainly, limiting federal contributions will somewhat reduce total Medicare expenditures, and undoubtedly cut the deficit. The risk for health care costs overall is that this will also lead to more cost shifting to private coverage and accelerate the health insurance death spiral (since Romney also proposes to revoke the Affordable Care Act). The risk for candidate Romney is that seniors and their lobbyists will see being forced to pay part of the premium as a form of tax increase―and that’s a risk that the missing details are likely to make worse, not better.
Roger Collier was formerly CEO of a national health care consulting firm. His experience includes the design and implementation of innovative health care programs for HMOs, health insurers, and state and federal agencies. He is editor of Health Care REFORM UPDATE.