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Getting Ryan-Wyden Wrong

Friday, December 23, 2011

How could one prominent healthcare voice be so wide of the mark?

Ezekiel Emanuel has made many interesting contributions to national health policy discussions, but it is difficult to view his recent New York Times editorial on Senator Ron Wyden and Representative Paul Ryan’s “premium support” proposal for Medicare as anything other than a willful attempt to mislead the public. It is simply implausible that, after spending several years as a health advisor in the Office of Management and Budget, Emanuel could know as little about the Medicare program as his editorial suggests.

Emanuel contends that premium support merely shifts costs to beneficiaries, will not save money, and will introduce problems of adverse selection into the Medicare program. He is wrong on all counts.

Emanuel begins with the Left’s common conflation of the two meanings of the term “Medicare.” When “Medicare” is used in public discourse it can mean the traditional fee-for-service health plan (often abbreviated as “FFS Medicare”) that is offered nationwide to eligible Medicare beneficiaries, or it can refer to the entire Medicare program, including both traditional FFS healthcare and the many private health plans that are also offered to Medicare beneficiaries in some market areas. Medicare reform proposals like the Wyden-Ryan proposal can alter the role of the traditional FFS health plan without otherwise affecting the Medicare program.

Emanuel contends that premium support merely shifts costs to beneficiaries, will not save money, and will introduce problems of adverse selection into the Medicare program. He is wrong on all counts.

Although you would not know it from Emanuel’s editorial, there is nothing new about private health plans in the Medicare program. Private health plans have been offered to Medicare beneficiaries since the inception of Medicare in 1965. We have plentiful research on  the quality of care in capitated, private care plans versus “public” fee-for-service health plans for Medicare beneficiaries. (“Capitated” healthcare is that in which a medical provider is given a set fee per patient, as by an HMO, regardless of treatment required.) Two exhaustive reviews of the literature concluded that care in fee-for-service plans and capitated managed care plans was roughly equivalent. Capitated managed care plans do a little better on preventive care and fee-for-service plans do a little better on care of chronic illness.

Nor is there anything new about the specific version of premium support in the Wyden-Ryan proposal. Ralph Saul and the INA insurance company made the same proposal to Congress in 1979. In fact, it would be fair to say that virtually everyone who has taken a serious look at the Medicare program’s cost problems (which also date from the inception of the program) has come to the same conclusion. Instead of basing the program’s contribution to premiums on the cost of care in the traditional FFS health plan, the government contribution should be based on bids from competing health plans, including both private plans and traditional FFS Medicare. Jessica Vistnes and her colleagues at the Agency for Healthcare Research and Quality found that offering multiple health plans with a level dollar contribution to premiums minimized total healthcare costs compared to offering only one plan. Roger Feldman at the University of Minnesota recently estimated that premium support would result in immediate savings to the Medicare program of 9.5 percent of total program cost–5.6 percent more than the provisions in President Obama’s Affordable Care Act.

Currently, Medicare beneficiaries have a legislative entitlement to varying levels of coverage for different healthcare services. They also have a legislative entitlement to obtain that coverage through the traditional FFS health plan for no more cost than the Part B premium (which is higher for high-income beneficiaries than lower-income beneficiaries). The Wyden-Ryan proposal preserves the first part of the entitlement but changes the second part so that the beneficiary’s out-of-pocket premium is limited to the Part B premium only for the two lowest-bidding health plans in each market area. Beneficiaries who want to join a more expensive plan are free to do so, but they have to pay the difference in premiums out of their own pocket. Since Emanuel believes that traditional FFS Medicare is much more efficient than private health plans, it must follow that FFS Medicare would have no trouble being one of the two lowest bidding plans, and thus he should have nothing to fear from premium competition.

In fact, it would be fair to say that virtually everyone who has taken a serious look at the Medicare program’s cost problems has come to the same conclusion.

The second part of the Wyden-Ryan proposal caps the growth on total Medicare spending, but as Emanuel points out, that part of their proposal adds nothing new to current law under the Affordable Care Act, which also caps Medicare spending growth. Sadly, neither the Affordable Care Act nor the Wyden-Ryan proposal contains a plausible mechanism for restraining costs to meet the cap other than cutting provider payments, but drastic cuts in provider payments were required by law even before the Affordable Care Act was passed.

Emanuel’s concerns over adverse selection suggest that he is unfamiliar with the hierarchical condition categories (HCC) risk adjustment system. The HCC risk adjustment system has been used since the early 2000s to determine the government’s payments to private health plans in the Medicare program. It is designed to ensure that health plans are compensated adequately for the enrollment of high-cost beneficiaries. If Emanuel is indeed familiar with the HCC risk-adjustment system, he needs to explain why he thinks it is fair to use that system to compensate private health plans for their high-cost beneficiaries, but not good enough to compensate traditional FFS Medicare for enrolling the same high-cost beneficiaries.

Emanuel’s endorsement of bundled payment for services in the traditional FFS health plan is laudable. The diagnostic related group (DRG) payment system for hospitals that Medicare implemented in the 1980s represents a successful example of both bundling and prospective payment. Proposals to bundle the “post-acute care” services that beneficiaries receive immediately following a hospitalization have been on the books for at least 20 years and Congress has failed to implement them. There’s nothing (except Congress) that prevents traditional FFS Medicare from bundling more services right now, and nothing in the Wyden-Ryan proposal makes it more difficult. If Emanuel is enthusiastic about bundling, he should be supportive of the ultimate form of bundling—a single payment for all the care received by a beneficiary—which is exactly how private health plans have been paid in Medicare since the early 1980s.

The Left has every right to oppose the Wyden-Ryan proposal. That proposal retains private plans in Medicare—long a thorn in the Left’s flesh—and introduces head-to-head premium competition between private plans and traditional FFS Medicare. But opposition to the Wyden-Ryan proposal should be based on facts, not misinformation.

Bryan E. Dowd is a professor in the Division of Health Policy and Management at the University of Minnesota’s School of Public Health.

FURTHER READING: Christopher J. Conover asks “Is Medicare a Ponzi Scheme?” and writes “In Sickness or in Wealth.” Joseph Antos discusses “Medicare's Failed Physician Payment Policy,” “Medicare Reform and Fiscal Reality,” and “Living in a Fiscal Fantasy World.”

Image by Darren Wamboldt/Bergman Group.

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