Wyden-Ryan: Real Compromise

I'm still digesting the Wyden-Ryan plan, but since the blogosphere is exploding over the plan, and the White House is attacking it, I think it's appropriate to offer some early thoughts. (For the record, former CBO Director Douglas Holtz-Eakin and I proposed something similar back in July.)

First, the politics of the plan: this is clearly a "win" for conservatives, since it reduces Democrats ability to play the Mediscare card in the general election next November. Although Democrats have done their utmost to cast the Ryan plan as nothing short of feeding granny to the lions, momentum has been growing among policy wonks on both the left and the right to experiment with some sort of premium support plan, beginning with the Congressional "Super Committee" discussions in November, as the New York Times noted not too long ago:

Members of both parties told the panel that Medicare should offer a fixed amount of money to each beneficiary to buy coverage from competing private plans, whose costs and benefits would be tightly regulated by the government. ...

Alice M. Rivlin, who was budget director for President Bill Clinton, had urged the deficit panel to establish an insurance exchange for Medicare beneficiaries. Private plans would compete with the traditional Medicare program and would have to provide at least the same benefits. The federal contribution in each region would be based on the cost of the second-cheapest option, whether that was a private plan or traditional Medicare.

That a well respected senator like Ron Wyden has officially embraced the model of Medicare "premium support" makes it a legitimate topic for debate and dicussion - and takes much of the Fear Factor out of the proposal.

But since Medicare bipartisanship of any kind breaking out is bad news for the White House, the Obama Administration wasted no time attacking it:

"We are concerned that Wyden-Ryan, like Congressman Ryan's earlier proposal, would undermine, rather than strengthen, Medicare," said White House Communications Director Dan Pfeiffer. "The Wyden-Ryan scheme could, over time, cause the traditional Medicare program to "wither on the vine" because it would raise premiums, forcing many seniors to leave traditional Medicare and join private plans. And it would shift costs from the government to seniors. At the end of the day, this plan would end Medicare as we know it for millions of seniors. Wyden-Ryan is the wrong way to reform Medicare."

What then is the right way to reform Medicare? Presumably, it's the massive provider cuts included in the Patient Protection and Affordable Care Act, which Medicare's own actuary has concluded are unsustainable since 40% of Medicare providers would become unprofitable by 2040. But even if the cuts were sustainable the CBO says they don't do enough to slow the growth in federal health care expenditures:

Rising health care costs will put tremendous pressure on the federal budget during the next few decades and beyond. In CBO's judgment, the health legislation enacted earlier this year does not substantially diminish that pressure.

- Douglas Elmendorf, Director, Congressional Budget Office, Presentation to the Institute of Medicine, Health Costs and the Federal Budget, May 26 2010

The President's only "solution" has been to offer the prospect of more cuts to provider rates through IPAB, which will only lead to the prospect of more providers dropping out of the program, and the rationing of care for seniors.

Wyden-Ryan actually advances several important new ideas. First, it would institute a new regional competitive bidding system, where plans would agree offer the same coverage as traditional Medicare. Federal premium support would be pegged to the second least expensive plan. This means that seniors who chose lower cost plans could keep the savings, and seniors who chose the benchmark wouldn't pay any more out of pocket than they do for Medicare now. Seniors who wanted richer plans could pay more for additional services.

Plans would be chosen from an insurance exchange, and insurers would have to take seniors without regards for their age or health status. Sicker seniors would get more money to buy affordable coverage.

As in Medicare's current Part D prescription drug program, competitive bidding would help to keep costs down. And insurers - unlike traditional fee for service Medicare - would have powerful incentives to create efficient networks of providers to offer high quality, affordable care.

Medicare has never been able to achieve this kind of efficiency because seniors have always been able to go anywhere they want, to any provider, and Medicare has paid for services on a piecemeal basis, which has led to the fiscal train wreck we're in today.

Ideally, competitive bidding and consumer choice would slow the rate of Medicare spending without impeding access or hurting quality. With a nod to the need for some kind of hard cap on Medicare spending, the Wyden-Ryan plan would limit growth in overall Medicare spending at GDP+1 percent - about where spending is capped currently under PPACA's Independent Payment Advisory Board.

(Some courageous journalist should actually have the temerity to ask President Obama why Wyden-Ryan would be any worse than his even more draconian IPAB proposal, or, for that matter, the premium support system that President Obama has created for everyone under 65 on the state exchanges.)

But this is where the bipartisanship rubber really hits the asphalt of election politics. The Wyden-Ryan plan protects Republicans from the charge that they want to kill Medicare...but it's resemblance (both in structure and regulation) to "Obamacare's" state exchanges also limits conservatives ability simply lambaste the Affordable Care Act.

The debate would then shift to the details: How quickly should premium support grow? How much should wealthier seniors (or the middle class on the state exchanges) pay for their own care? How much do state and federal regulations actually drive up insurance costs and limit provider competition?

Some liberal commentators see Wyden-Ryan as crumbling conservative opposition to universal coverage. But it's equally possible to see Wyden-Ryan as crumbling liberal opposition to more market forces in health care generally, and Medicare in particular.

Wherein lies the truth? Health care spending is driving the U.S. toward fiscal ruin. Reforms must be serious to be sustainable, and sustainable reforms require bipartisan support. They will also require uncomfortable compromises from both parties that shatter long held caricatures.

Senator Wyden and Representative Ryan have begun a serious dialogue about what that compromise would look like. It would be nice if we had a president who could embrace that opportunity, rather than reflexively vilify it.

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