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.

Sounds plausible, right? But wait, there's a twist!

It turns out that the premium-support payments in the Affordable Care Act's insurance exchanges also have a target growth rate, one that, under certain circumstances, is tied to...inflation. As James Capretta describes in this article, with two follow-up posts, the legislative language is extremely complicated on this topic. But it appears that, if aggregate Affordable Care Act subsidy spending exceeds 0.504 percent of GDP, the law requires those subsidies to grow at the rate of the Consumer Price Index.

Affordable Care Act's suporters seem to think that the law's insurance exchanges are terrific. So why is it that many progressives think that it's inhumane to tie premium support to inflation in the case of wealthy Medicare recipients, but that it's perfectly fine to do so for lower-income participants in the Affordable Care Act's exchanges? I haven't yet heard a persuasive answer.

There's more. Under the Affordable Care Act, after 2017, the law's target growth rate for Medicare spending is lower than health-care inflation, à la Henry Aaron, or GDP plus 1 percent, à la Alice Rivlin. Instead, it's an average of three indices: CPI-U, a marker for general inflation; the medical care expenditure component of CPI-U; and GDP plus 1 percent. Prior to 2017, it's even lower, blending only the CPI-U and the medical component of CPI-U.

Last year, I went back and looked at these growth rates from 2006 to 2010, as a way of comparing them, and found them to be pretty similar. President Obama's FY 2012 budget proposed reducing the PPACA Medicare growth rate by an additional 0.5 percent. And yet, Democrats are describing the Republican plan as "ending Medicare."

At any rate, Wyden-Ryan, the latest bipartisan plan from Paul Ryan and Sen. Ron Wyden (D., Ore.) addresses this critique by setting the target growth rate for Medicare premium support payments at GDP plus one percent: higher than the rate contained in Affordable Care Act, and identical to the one supported by Alice Rivlin.

Was this adjustment met with celebration by Henry Aaron and other progressive critics? In a word, no. Aaron took again to the pages of the New England Journal of Medicine to denounce Wyden-Ryan as threatening "to shift costs to the elderly and disabled and force them to shop for coverage in a confusing insurance market." The White House blasted Wyden-Ryan as a sinister, "radical" plot to let Medicare "wither on the vine." Rep. Pete Stark (D., Calif.) said, "Despite Wyden's claims otherwise, the Wyden-Ryan plan ends Medicare as we know it, plain and simple."

Liberals feel that their search for bipartisan approaches to universal coverage has been like Charlie Brown trying to kick Lucy's football. Conservatives feel the same way, in reverse, about entitlement reform. Henry Aaron explains his change of heart with the same Keynes line used by former Republican supporters of Romneycare: "When the facts change, I change my mind. What do you do, sir?"

Conservatives certainly have their work to do on health policy. But the problem for liberals is what Paul Starr calls the "policy trap" of Medicare. Universal coverage isn't fiscally possible without first reforming our existing, popular entitlement programs: not by top-down rationing, which never works, but by letting seniors control more of their own health dollars. We really should try.

Follow Avik on Twitter at @aviksaroy.