What Liberals Miss on Medicare Reform

Avik S. A. Roy

One of the great liberal frustrations in the debate about health-care reform is that the goalposts keep moving. Democrats learned from the Hillarycare fiasco, and sought to model their 2009 health-reform effort on a law designed by a Republican governor, Mitt Romney, and backed by a conservative think-tank, the Heritage Foundation. "I try to avoid implying that liberal wonks are somehow fundamentally superior to conservative wonks," wrote Kevin Drum in a representative blog post. "But good Lord, conservatives sure make it hard to maintain this pretense."

As I've written before, the conviction that conservative health wonks are fundamentally scurrilous and hypocritical is over-wrought. Within conservative health-policy circles, Romneycare and the Heritage plan were extremely controversial. However, it is true that many Republican politicians endorsed Romneycare, most notably Newt Gingrich, who in 2006 called Romneycare an "exciting" development with "tremendous potential," but now calls it "one more big-government, bureaucratic, high-cost system."

So, yes, it's true that Republicans' views on health reform have evolved over time. What goes less remarked-upon is that something similar can be said, in reverse, on Medicare reform. There, it is Republicans who have tried to propose ideas from the starboard side of health wonkery, only to get rebuffed by the reforms' most prominent liberal advocates.

The emerging conservative consensus around Medicare reform involves two ideas with prominent progressive backers: premium support, and competitive bidding. Mitt Romney's proposal for Medicare reform reflects both of these ideas, as do the latest Medicare reform proposals in Congress: Wyden-Ryan and Burr-Coburn.

The term "premium support" was coined in 1995 by Henry Aaron and Robert Reischauer of the Brookings Institution. "Rather than paying for all services on a stipulated menu," they wrote then, "Medicare would pay a defined sum toward the purchase of an insurance policy that provided a defined set of services. As with private insurance for the working population, plans could reimburse any provider the patient chooses on a fee-for-service basis...contract with a PPO, or operate through an HMO."

The attraction of premium support was that it gave seniors a way to choose how best to restrain Medicare spending. "This framework lends itself to budget control in ways that the current system does not," wrote Aaron and Reischauer, because it would limit "the possibility of overuse of medical services" by allowing seniors to "choose the plans whose style of care matches their preferences," while assigning them "the financial consequences of their choices."

In 1997, the National Bipartisan Commission on the Future of Medicare, led by Sen. John Breaux (D., La.) and Rep. Bill Thomas (R., Calif.) adopted the Aaron-Reischauer proposal, recommending a "market-based Premium Support model" similar to the one used in the Federal Employees Health Benefits Program. The idea continued to burble up in bipartisan reform discussions, such as the Protect Medicare Act proposed by former Sen. Pete Domenici (R., N.M.) and ex-Clinton budget chief Alice Rivlin.

In 2011, House Republicans, led by Paul Ryan, boldly passed a Medicare reform proposal based on premium support. Ryan based his legislation on a proposal that he and Alice Rivlin put forth when they served together on the Simpson-Bowles deficit reduction commission.

But the House Republican plan didn't earn many bipartisan plaudits. It was opposed, in fact, by Alice Rivlin and Henry Aaron. A key sticking point for Rivlin, in particular, was Republicans' targeted growth rate of the premium-support payments. The original Aaron-Reischauer plan sought to grow the payments at a rate tied to growth in per-capita private-sector health spending. The Rivlin-Ryan plan had set the target growth rate at GDP plus 1 percent. The GOP House Budget set at a lower rate, that of general inflation (CPI-U).

"That's a reason for me saying very strongly that I don't support the version of Medicare premium support in the [House GOP] plan," Alice Rivlin told Ezra Klein. "It's both because the growth rate is much, much too low, and because it doesn't preserve fee-for-service Medicare as the default option." Henry Aaron echoed these comments in an op-ed for the New England Journal of Medicine, pointing out that his original proposal sought to tie growth in premium-support payments to health-care inflation.

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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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