The Wyden-Ryan Plan

House Budget Chair Paul Ryan (R-WI) and Senator Ron Wyden (D-OR) have embraced a Medicare reform plan that in concept borrows heavily from one championed by former New Mexico Senator Pete Domenici and former Clinton budget chief Alice Rivlin.

Specifically, Wyden and Ryan are proposing to alter the earlier Ryan Medicare plan by:

  1. Continuing to offer the traditional Medicare plan—Ryan would have eliminated it—in addition to a range of private Medicare plans offered by health insurers.
  2. Tying federal Medicare premium support to an amount equal to the second lowest cost Medicare plan—public or private—available to seniors in each market. Ryan would have set a flat premium support amount in year-one and increased that only at the rate of inflation.
  3. Instituting a series of consumer protections and medical underwriting rules designed to protect seniors.
  4. Instituting an annual cap on what the federal government could pay for Medicare at an amount equal to the increase in the nation’s GDP + 1%—Ryan would have capped annual increases in the federal premium support amount at the increase in the consumer price index.

On this blog I have been arguing that the risk for health care costs rising too quickly should not be borne entirely by seniors–that the stakeholders who really run the system should be most accountable. And, that is what the Wyden-Ryan plan would do: “Any increase over that cap will be reflected in reduced support for the sectors most responsible for cost growth, including providers, drug companies, and means-tested premiums,” their plan states.

The Wyden-Ryan would begin in 2022.

Under Wyden-Ryan, if Medicare costs increased at a rate greater than the cap, the Congress would have to determine where to make reductions in spending—they could not directly cut senior benefits. Just what would force them to do that is unclear.

The new Wyden-Ryan Medicare policy proposals accomplish an elegant combination of key progressive and conservative health care reform principles. Their proposal also produces an enormous political bombshell on the eve of the 2012 elections.

Wyden and Ryan also propose to improve the under-age-65 employer health insurance market by allowing businesses with fewer than 100 workers to move to a defined-contribution model without tax penalties—something that is very similar to the earlier Wyden-Bennett health reform plan.

An Elegant Policy Compromise

Republicans have supported a defined contribution approach to Medicare reform. Already, House Republicans have voted in favor of the first Ryan proposal. That proposal would eliminate the traditional Medicare plan and replace it with a premium support system, or voucher, with which to buy from a range of private Medicare offerings. Any annual increase in the value of the premium support under the first Ryan plan would be capped at the rate of annual inflation as defined by the consumer price index—health care costs have consistently risen at much faster levels.

On this blog, I have been very critical of that proposal because it would shift all of the risk for the adequacy of any future federal premium support entirely onto the shoulders of seniors.

Democrats generally believe in the current Medicare plan, that seniors should be guaranteed a defined Medicare benefit and that the government pay a fixed portion of all Medicare costs as it does now—a defined benefit plan.

The problem is that the defined benefit Medicare plan we now have, and the government’s guarantee to pay most of its costs, is literally bankrupting the country.

So, something has to give.

What is elegant about the Wyden-Ryan compromise is that they have proposed a hybrid plan—it contains significant elements of both a Republican defined contribution and a Democratic defined benefit approach.

Republicans get an affordable cap on what the federal government would spend on Medicare—that growth would be no more than GDP+1%—and they would get a program built on a free market platform where consumers would have the incentive to maximize their premium support by shopping for the plan that best met their needs.

Democrats would get a plan that still contained the traditional government-run Medicare plan as one of the options and they would have a plan where all seniors were guaranteed a federal premium support level good enough to buy at least the two lowest cost Medicare plans available in their community—albeit maybe not the traditional Medicare option.

If there was ever a place for Republicans and Democrats to compromise on Medicare reform this is it. It is an elegant compromise—a hybrid—of both defined benefit and defined contribution principles.

The Political Bombshell
Frankly, the way Washington normally works, I would have expected this kind of compromise a year from now—after the 2012 elections.

But if an idea like this is ever going to make it into law, the right thing to do is to get it out there now so that the coming election debate over Medicare has all of the good ideas on the table.

The Wall Street Journal is out with an editorial on Thursday claiming the Wyden/Ryan proposal is a Republican victory “because it shows that the serious entitlement debate is taking place within the camp of choice and incentives, not the Obama status quo.” Nice try.

But it is unavoidable to conclude that Ryan has given all of those Republicans in the House, who have already voted for his first Medicare plan, a severe case of heartburn—not to mention all of those Republican presidential candidates who have made the first Ryan Medicare plan a virtual litmus test for who really is a conservative Republican.

To say Ryan’s first Medicare plan was controversial and a huge political risk is a pretty big understatement. And, many Republicans, particularly in the House, unconditionally embraced it.

But, here is what Ryan said in Politico on Wednesday:

“If you wait and allow the political paralysis to stop us from fixing and saving this program then you’re not going to be able to grandfather people. Then you’re not going to have severe disruptions in seniors lives that would just be, I think, morally wrong because we see this problem coming. What Ron and I are trying to do is to prepare the ground for a consensus to be accomplished as soon as the politics allow it to happen.”

Can’t disagree with that logic—that bipartisan logic, in fact.

But what does that do for all of the House Republicans who stepped out on that risky Medicare limb for Ryan and now have to defend their vote on the eve of an election? A vote that would have “killed Medicare as we know it?” Or, those Republican presidential candidates who couldn’t wait to out do the other candidates with their zealous support of it?

Gingrich and Romney embraced the Ryan Medicare plan—albeit with the key modification that the Ryan plan should keep Medicare as one of the options. Smart on their part. But Ryan goes a lot further than that in his bipartisan proposal with Democrat Wyden by, among other things, increasing the rate at which premium supports—and therefore the federal entitlement—would increase and by creating a defined benefit Medicare floor in the new proposal as well as conceding consumer protections to Wyden (make that more regulation than most Republicans would like to see).

Democrats may now be mourning the loss of the first Ryan plan they thought was a big fat political target going into 2012. But, by coming on board with Wyden, Ryan has all but conceded his first proposal wasn’t politically acceptable. Democrats who said they would never alter the Medicare entitlement, an unrealistic promise in the face of the debt crisis, can’t be happy a leading progressive has found a way to do it.

Democrats jumped all over Gingrich’s original rejection of the Ryan plan, when he called it “right wing social engineering.”

You have to believe they are now going to have a better time jumping on all those Republicans who voted for, or have unconditionally supported, that first Ryan plan now that that key parts of that idea have been abandoned by its author.

But that analysis focuses on the partisan politics that are sure to follow in this town.

I will suggest that this proposal represents something above all of that.

Who is the winner here?

Bipartisanship. This compromise carefully recognizes and balances important principles from both sides toward a solution to a major problem and I hope people who really want to fix things will appreciate that.

This is a good day for the country—and we haven’t had one in a while.

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.

30 replies »

  1. This is actually a reply to Margalit’s below comment (I guess we ran out our thread!). Medicare Advantage does not require you to file claims for every visit, and takes care of the the multiple parts problem. A lot of regular Medicare’s paperwork simply goes away, along with the copays.

    Ryan Wyden solves the second problem, by creating a fixed contribution model for regular Medicare/Medicare advantage offerings based on the second lowest cost plan- meaning that Medicare Advantage plans have to be price competitive with or beat regular Medicare, or beneficiaries will pay extra for them. This has been the missing ingredient.

    Right now, beneficiaries are far better off than the federal budget is under Medicare Advantage, because all the potential savings go to the benefiiciary in the form of reduced cost share or more services.

  2. “the medical community could do a better job of drawing these patients out about their values, concerns and end of life wishes while they can still clearly communicate their thoughts. If we put more effort into encouraging end of life planning, the potential savings to the healthcare system are huge while many more people facing death will die in peace and with their dignity intact instead of hooked up to machines in an ICU.”

    That idea was in the ACA but quickly perverted into “DEATH PANELS” by Repugs. Can’t negotiate with fanatics.

  3. Jeff, those crazy claims still need to be filed, even if the doctor is capitated, and many are not. I agree that ACO is not a replacement for FFS, but I am very skeptical of the current opinions on the evils of FFS .

    MA plans have been around for a while and have not controlled costs any better than Medicare. Why is enrolling more seniors into those plans considered a cost control measure?

  4. It would be helpful if there was a bio for Blog posts (or if there is make it more obvious..

    For example I assume that this author is a former insurance exec? “Mr. Laszewski was chief operating officer for a health and group benefits insurer.”

  5. Steve –

    I agree that lack of end of life planning is a serious issue. However, at the Gundersen Lutheran Health System, fully 96% of their patients facing end of life situations have executed a living will or advance directive. It can be done. If it were up to me, executing such documents would be part of the process of signing up for Medicare or a condition of admission to a skilled nursing facility or assisted living center. The information would then be stored on an electronic registry so it would be available to doctors, hospitals and relatives either legally empowered or asked by doctors to make medical decisions on a patient’s behalf. Such rules still would not cover younger people seriously injured in accidents or stricken with life threatening conditions but it would be a huge improvement over what we have now as the vast majority of people who die in the U.S. each year are 65 and older.

    In the case of cancer, which is now the biggest killer of people under 65 with heart disease a close second, the medical community could do a better job of drawing these patients out about their values, concerns and end of life wishes while they can still clearly communicate their thoughts. If we put more effort into encouraging end of life planning, the potential savings to the healthcare system are huge while many more people facing death will die in peace and with their dignity intact instead of hooked up to machines in an ICU.

  6. “I wonder to what extent doctors contribute to the problem by holding out false hope to patients and families.”

    Barry, have you seen the TV commercials for, “Cancer Treatment Centers of America”? If so you’ll understand that for people with good insurance there is no end of life.

  7. Very few people make decisions about this stuff ahead of time. So, these decisions are often made by relatives who dont know what to do, so they just have us do everything. It is hard for people to make these decisions under stress, often at night. I know docs who think it goes against their faith or professional ethics to do anything other than try everything to hold off death, but I think it is mostly a lack of pre-planning.


  8. Here’s one example of how pathetic people have become thanks to the false message of hope by pharma: dementia meds like Aricept and exelon. Colleagues that are honest and responsible do not sell these meds easily nor pervasively, and yet, the public wants them and wants them en masse.

    Well, all I can say is this, pervasive dementia is what Bram Stoker was writing about when he said ” there are worse things than death.” But, people don’t want to hear that organs fail, especially the brain. Good luck with that agenda!

  9. “Does anyone who writes here accept that death happens and is unavoidable? Oh no, not as long as faux technology continues to pump up false hope.”

    I’ve been pounding away at the need for a more sensible attitude and approach toward end of life care for almost six years now. I’m glad to see that I’m not alone.

    I wonder to what extent doctors contribute to the problem by holding out false hope to patients and families. Maybe there’s a need for more frankness on their part. If an intervention has only a 1% chance of doing any good, don’t say there’s a 10% or 20% chance. If a patient is likely to die within a couple of weeks, don’t tell the family 3-6 months. Tell it like it is as gently and diplomatically as possible. I hear that docs in Germany are much more forthright about matters like this. Maybe U.S. docs should be too.

  10. But ACO’s will apply to maybe 15% of the Medicare population at the outside. And those will not likely save Medicare any money OR make the care simpler for patients. They are still going to have to go thru the brain damage of filing multiple claims (Part A, Part B, Part D and supplemental coverage).

    The ACO is not fit for purpose as a replacement for the fee for service model, as has been exhaustively argued in this space. Unless they savage Medicare Advantage payment levels, they will enroll perhaps 40% of the Medicare population, including half of the boomers, even without Ryan-Wyden.

  11. It’s the principle of Medicare that I think serves us better. The technicalities can be fixed. Aren’t ACOs supposed to manage care? If so, why would I need another layer of HMOs on top of it to also manage care? Is there any reason to pay twice for management and twice for risk assumption?

  12. Legislation that takes 5 or more years to be phased in should be suspect, especially with the crowd in DC as is. You can sit here and pontificate statistics and actuary charts and other deflecting positions, but, at the end of the day, if we continue to focus on extending life way beyond what nature intended, you better come up with unlimited financial resources to fund old people living too long and maintaining this narcissistic, ego driven attitude that consumes all and provides little.

    Does anyone who writes here accept that death happens and is unavoidable? Oh no, not as long as faux technology continues to pump up false hope.

    Viva America, how can so many lives fit in that little beat up can?

  13. I cannot believe you think regular Medicare, with its completely fragmented and user unfriendly payment model, better serves seniors than a SNP or social HMO type Medicare Advantage plan where at least there are protocols in place to guide how care is provided. Arch liberal Bruce Vladek, who ran HCFA in the early 1990’s, has called regular Medicare a “crappy benefit”. Not Rush Limbaugh but Bruce Vladek.

    Regular Medicare is an antique- a 1960’s health plan so riddled with holes that you’d be crazy not to have, at a minimum, supplemental insurance to paper over all the holes. It didn’t even have drug coverage until 2003. . .

  14. Just like Wyden-Bennett, another good framework that didn’t go anywhere, it’s good to have Ryan-Wyden on the table. The reaction in Washington, where I was when this “happened” was anger at Wyden for messing up the 2012 Democratic “MediScare” election meme. Not clear about whether the Republicans want a bi-partisan solution to this problem either. God bless Ron Wyden for fielding a serious, thoughtful proposal.

    Comments about 2022 are on point- we’re deep into the boomer enrollment process in Medicare by then (half of boomers- about 36 million, less those covered by their employers- will have to declare eligibility by then). Our elected representatives are no more serious about fixing the Medicare fiscal problem than the Italian Parliament is about putting their fiscal house in order. Health reform for BOTH parties is all about “positioning” for the next election.

    Comments about “this must mean ACA will be maintained if Republicans take power” is nonsense. ACA is toast if the Republicans take power.
    There may be a surviving skeletal insurance reform piece, and a much scaled back coverage subsidy based on tax credits (e.g. that covers less than half the cost of actually obtaining insurance). ACA will be repealed if Republicans control both Congress and Exec branch, and crippled and stripped of cash if the Repubs merely control Congress.

  15. Not true. The Latino block votes quite differently across the US and is in not way uniform. Cubans for example in Florida have tended to vote staunchly GOP but it has faded with younger Cuban. Puerto Ricans/Dominicans in NY, Chicago, and other urban cities used to tend to vote heavily Democratic and still generally do but not as much.

    Even in Texas, it is a very mixed picture depending among Mexicans depending upon how they have been in the US and been settled. Presented as a uniform bloc & couldn’t be further from the truth. Mexicans tend to be socially quite conservative but Mexicans who have been settled in Texas for 2-3+ generations tend to be conservative. They don’t support open immigration and a host of other issues.

  16. DetermineMD – There will be a budget crisis that will force this to a head before that because the US Treasury won’t be able to keep rolling over this massive debt service at 2-3% until 2022.

    The reason that Ryan wants to push it out so much (and the reason that is original plan didn’t call for almost any sacrifice among those 55 or less) is that the GOP is desperate to keep the white Boomer vote for as long as they can because the demographic issues simply aren’t favorable to them over the more intermediate term among Latinos if they keep their current positions.

  17. While I applaud the concepts here, weak points include the adequacy of the risk scoring mechanism and how adjustments would be made in case program costs grow faster than GDP +1%. The SGR fiasco taught us that just squeezing provider payments is not a viable option when current payments are not exactly generous. Risk scores still overpay for the healthy and underpay for the sick which creates an incentive to avoid the sickest seniors. Finally, lower cost plans could keep costs down by deliberately not contracting with the best known hospitals and cancer centers for expensive surgical procedures and cancer treatments. While those conditions are covered by the policy, the member would find that the well known centers are not in the network and may not understand that at the time the policy was purchased. So, at the very least, there would need to be good transparency around the composition of the network as well as the scope of coverage under the policy in order to make a fully informed choice. It’s also not clear how standard FFS Medicare would be priced and whether it would be expected to at least breakeven from voucher revenues alone.

  18. The Wyden-Ryan plan will start in 2022. What is it about that sentence that should disturb pretty much anyone with half a brain paying attention to what is going on in Washington?

    10 years to implement a plan? Or, perhaps 10 years to give manipulating and pandering to all the assorted special interests that gain NOT to see the legislation stay as potentially passed in 2012. Gee, they found a way to one up the process the Democrats paved with PPACA. Pass legislation that does not go fully into effect for 7 years.

    Again, anyone want to be that can being pummeled towards the cliff?

  19. It uses the exchanges and competitive bidding just like the ACA, including a public option. The devil is in the details. How do they achieve GDP+1? Simpson-Bowles did the same thing. Easy in concept, difficult in practice.

    For small businesses, how do they determine the contribution each year? Pretty easy for the first year, but how about later?


  20. “Ryan showed that he was willing to tread a bit more in the center”

    Center?? How did privatizing a large chunk of Medicare, the chunk that servers better off seniors, become center? Center between what and what?

  21. Poison in the GOP today isn’t on reforming benefits and pensions. It is the insanity that you have to cut taxes.

  22. “GOP wants Medicare/Medicaid gone.”

    And they wouldn’t win a federal election again for a generation at least. Maybe more. I would have rather seen the Wyden plan from the start and do away with the disjointed mess we have in the US but Kennedy died/Dashcle didn’t get appointed & we ended up with a gigantic mess instead.

  23. “Ryan showed that he was willing to tread a bit more in the center”

    “It is the exact opposite approach he showed in his revamped ‘Road to Prosperity’ ”

    “It showed me that Ryan is at least willing to deal and more off his position.”

    Think he’ll hold that middle position if GOP wins WH and Senate and holds the house? I think this is just an election ploy to placate seniors through the 2012 election. GOP wants Medicare/Medicaid gone.

  24. Because the current Medicare system isn’t sustainable and I don’t mind Ryan’s plan of a tax credit or some limited funding for Medicare. What I had a huge issue with was the economic conditions that Ryan detailed in his initial plan which largely did throw future seniors (including myself) to the wolves and the vagaries about his specific plan.

    I am not a fan of parsing out the risk pools and the +1 GDP rule but Ryan showed that he was willing to tread a bit more in the center which is what is badly needed among the GOP conservative side. It hints there could be the beginnings of a workable solution here.

    It is the exact opposite approach he showed in his revamped ‘Road to Prosperity’ released earlier this year which being kind was supply-side economics on massive steroids. Much bolder than his 2008 plan. It reality it was pure ideological garbage with economic assumptions about growth that were ridiculous without any economic historical underpinning. It also completely omitted defense and the hard issues we are going to have to address with veteran care and pensions which are slowly eating up the DOD budget.

    It showed me that Ryan is at least willing to deal and more off his position. Yes, he wants to privatize Medicare eventually and move it to a tax credit but there are some important concessions here. Its a starting place and what is badly missing in Washington today even if it is not nearly enough for House Democrats and not want House GOP members want.

  25. My first impressions:
    1. This is yet another sign that the ACA will survive and Republicans acknowledge its basic framework as the way to go. At heart, this plan is putting Medicare on the exchange and tying the subsidy to a bidding process. The “mandate” might be replaced with an open enrollment period with penalties for not joining, just like Medicare part B and C already do. Slowly, Medicare, commercial insurance and Medicaid are coming to look more alike, and be purchased in the same way.

    2. If this or something like it passes, it opens the door a crack for the public payer that couldn’t make it into PPACA and for means-testing Medicare subsidies. Again, the structure of purchasing commercial insurance on the exchanges is becoming more like the structure of buying Medicare. Even if this particular bill goes nowhere, that is the future.

    3. there is a building consensus on both sides of the aisle that we should move from defined benefit to defined contribution, of a sort. The government will try to tie subsidies both to market mechanisms and to regulatory caps.

    4. Personally, I see this doing more good than harm, but only if people are not left to fend for themselves on finding plans in a morass of poorly understood options. product standardization is crucial. Plan comparison tools are crucial. Actual competition is crucial.

  26. “Ryan just earned a lot more credibility in my book.”

    “Instituting an annual cap on what the federal government could pay for Medicare at an amount equal to the increase in the nation’s GDP + 1%”

    Help me understand your sudden support MG. Figures from CMS.gov show NHE (2009 – 2019) projections (only their figures, not necessarily the right ones) as:

    “Medicare spending is projected to grow 8.1% in 2009 and average 6.9% per year over the projection period.”

    If I’m looking at this right, you’d need a GDP increase of 5.9% (+1%) per year to break even on what the feds pay and what beneficiaries use. Do you really think GDP will grow that much to keep seniors even with cost growth? I believe what it will do is erode benefits unless seniors can afford additional private coverage. I guess I could support this if providers/insurers somehow would do more with less, but I think the gravy train for them has been too good for too long.

    I’m not ready to commit yet until I see the fine print that shows this is not a back door to 100% private insurance for seniors, with more just needing Medicaid.

  27. I understand the GDP +1 idea (not necessarily agree, but understand). What I don’t understand is how can fragmenting Medicare into a bunch of disparate pools and plans is going to reduce costs, without reducing benefits? I do understand how it funnels more tax payers money to corporate “administrative” functions and profits.

  28. Is it kind of laughable too that Gingrich is running as the ‘idea’s man’ in the GOP when that role has clearly been held by Ryan for at least a year or two now. Ryan doesn’t strike me though as much of an effective operator though yet in the Senate and I wonder if his political career shapes up like LBJ who literally became ‘master of his domain’ in the Senate.

  29. Ryan just earned a lot more credibility in my book. I am really surprised he shifted as much as he did. He certainly didn’t do that on tax rates in his latest policy proposal earlier this year when he went even further to the right than his original one.

    I really hope there is some consensus on this moving ahead forward and that the left doesn’t attack it because they want ‘single payer’ and the right doesn’t insist that we continue to move more towards a “dog eat dog world.” Both represent extreme positions that are unrealistic and non-starters in our current political system.