The wrong "Path" to follow

This past week, our country finally got news that was bound to come sometime: a proposal to drastically shrink the size of the federal government and completely retool health entitlement programs, most notably Medicare.

“The Path to Prosperity,” released by House Budget Committee Chairman Paul Ryan, is the most dramatic attempt by any lawmaker to date to change the course of our government’s spending and hopefully get our deficit and debt level under control.

But the plan, which proposes cutting the federal budget by $6.2 trillion during the next 10 years, would predictably lead to a jarring shift in the size and scope of the federal government.

Among other significant changes are the proposal’s aims for Medicare and Medicaid, which would be turned into a premium support (read: voucher) program based on private insurance and a series of block grants given directly to states, respectively.  

While dramatic, the changes to Medicaid aren’t all that surprising. Long a bane of conservative lawmakers, the means-tested health care program for the poor makes an easy target because it’s generally not as popular as Medicare and the proposed modifications would strike at the foundation of one of the Patient Protection and Affordable Care Act’s major routes of coverage expansion (although, ironically, some parts of Ryan’s plan seem to be built on PPACA’s framework). Make no mistake — “Prosperity” is pretty political.

The real surprise, however, is the plan’s goals for Medicare, the popular federal program that provides health care to the elderly and disabled. The proposal would essentially end Medicare’s limitless entitlement (at least from the federal government) and deliver a fixed annual payout based on an enrollee’s income, health status and age. This money would be paid directly to a private insurer, which would, in theory, also allow enrollees greater choice of providers and services.

I have a few (well, more than a few) problems with this plan.

First, shifting seniors from Medicaid to private insurers is unlikely to save anyone (except the federal government) much (if any) money. The average annual cost per Medicare enrollee was about $11,700 in 2009. Ryan’s plan would pay out an average of $8,000. The near-certain shortfall would then be shifted either on seniors or health insurers, depending on the ultimate fate of PPACA. The Congressional Budget Office has already released a report that predicts that under the Ryan plan, Medicare enrollees’ out-of-pocket burden (as a percentage of their overall health costs) would more than double by 2030.

In addition, this $11,700 is in “Medicare dollars” — a dollar goes quite a bit further under Medicare than private insurance.

Because of its massive size, Medicare is able to negotiate rates from providers that are generally significantly less than what private insurers pay. It is unlikely at best that any other single insurer would be able to match this bargaining efficiency, even with a flood of new policyholders.

Furthermore, in terms of administration, Medicare is a very efficient model for health care delivery. The program spends a lower percentage of its budget on administrative costs, on average, than commercial insurers. (Although there is some debate about Medicare’s administrative percentage, even the most cynical analysts place it at not higher than 8 percent.)

Next is the issue of risk pooling. Especially considering PPACA’s restrictions on medical underwriting and rating,  insurers would be dealt a massive blow if forced to accept thousands of new policyholders in their most expensive stage of health care need. Under this scenario, Ryan’s proposal could very conceivably raise insurance premiums for the rest of the population, hardly a welcome prospect to a nation that already seems to be generally pissed at the government.

Even if PPACA’s main provisions are weakened or repealed, what health insurers in their right mind are going to voluntary accept millions of elderly enrollees?

Now, assuming at least some elements of health reform were to remain in place, seniors would still have no restrictions on lifetime medical expenses (PPACA also prohibits insurers from capping benefits),  but the risk of such an entitlement would fall to private companies rather than Uncle Sam. This seems to make little sense, especially when the idea is coming from a member of the “pro-business” party.

I’m only brushing the surface of my qualms, but I’ll stop there. I hope you understand why I’m concerned.

I have to commend Ryan for his bold plan and willingness to tackle issues that must be dealt with, but really? This is the best he could come up with?

Far from a game changer, his proposal ignores numerous political and economic realities and is a Frankenstein mash-up of conflicting policy assumptions. Instead of cutting costs, Ryan’s plan simply shifts them — mostly to a segment of the population that may be the least able to pay.

I have no doubt that we can no longer write blank checks to our nation’s seniors, but at least for Medicare reform, “The Path to Prosperity” is not a road we want to go down.

­— biglehar@indiana.edu