Republicans’ premium support long game

Medicare’s future — thanks to the Affordable Care Act — is promising. The law extends the life of the trust fund, improves prescription drug coverage and eliminates copayments for critical preventive services.

And the Affordable Care Act also takes important steps to change how Medicare and the rest of our health system pay for care — moving the system from one that rewards volume of care to one that rewards quality of care. More still needs to be done to lower overall healthcare costs, but the Affordable Care Act set the groundwork for future reform.

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But even though Medicare is heading in the right direction, it faces an enormous threat from Republicans who want to turn the program into a voucher system.

Last year’s House Republican budget, from Rep. Paul Ryan (R-Wis), revealed the true goal of so-called “premium support” plans — to replace traditional Medicare with vouchers that seniors would use to help pay for a private healthcare plan. This year’s version, which GOP presidential nominee Mitt Romney has endorsed, is slightly different because it allows seniors to use the vouchers to help pay for traditional Medicare.

But the goal is the same — Republicans have just changed their strategy. They are now playing the long game: the Romney-Ryan version of premium support does not preserve traditional Medicare, it simply prolongs its decline.

That is because the rules of this new game are rigged against traditional Medicare, and we already know the end result.

In just over 10 years, seniors would receive vouchers to purchase their choice of a private plan or traditional Medicare. The amount of the voucher would initially be based on the amount of the premium of the second-lowest private plan, or Medicare, whichever is lower.

Republicans know that traditional Medicare simply cannot compete on a level playing field with private plans. Private plans already attract the healthiest, lowest-cost seniors, who do not necessary need access to traditional Medicare’s broad choice of providers — called adverse selection. Its payments to healthcare providers include extra amounts to help finance medical education and bolster rural and safety-net providers. Private plans are exempt from these responsibilities.

As a result, seniors will almost certainly have to pay more to stay in traditional Medicare. This financial incentive to choose a lower-cost private plan will accelerate the adverse selection that already exists in the program. As more and more seniors flee to private plans, only the sickest, highest-cost seniors will remain, causing premiums to keep increasing — a chain of events called the “death spiral.” According to a study by the Center for American Progress Action Fund, seniors who wish to stay in traditional Medicare will pay an extra $29,000 over their retirement as a result of this adverse selection. And that’s a conservative estimate.

It’s not just seniors who wish to stay in traditional Medicare who will pay extra: all seniors will be forced to spend thousands more for healthcare under the Romney-Ryan plan.

The plan caps the rate of growth of the voucher at the rate of growth of the economy plus 0.5 percentage points. But because this rate of growth is much slower than the projected growth in healthcare costs, and the Romney-Ryan plan does nothing to reduce those costs more generally, over time the voucher will cover a smaller and smaller portion of health costs — with seniors picking up the difference.

Premium support devotees claim that competition between plans will lower prices. But healthcare markets function differently than other consumer markets. In fact, the evidence strongly suggests that this approach would raise system-wide healthcare costs. For that reason, the Congressional Budget Office concluded that savings from a voucher system would come from seniors shouldering more of these costs, and not from increased efficiency in the health system.

These costs will crush seniors. The Center for American Progress Action Fund found that current 54-year-olds will pay almost $60,000 more over their retirements, and current 30-year-olds will pay a staggering $330,000 more.

None of this is surprising: for years Republicans have encouraged private plans as an alternative to traditional Medicare. Private plans pay higher rates to healthcare providers and have higher administrative costs, but Republicans supported their growth with generous overpayments. And now that the Affordable Care Act eliminated those overpayments, Republicans have turned to premium support as a backdoor way of steadily eroding traditional Medicare over time.

The only real change with the Romney-Ryan version is that Republicans now seem content to sit back, wait and watch Medicare’s slow decline.

Calsyn is the associate director of health policy for the Center for American Progress Action Fund.