Congressional Republicans agreed to a non-binding budget framework yesterday that would slow projected growth of Medicare, but not completely restructure the program as the House GOP wanted.
House Republicans tried to use the budget process to fundamentally rewrite Medicare, turning it from an open-ended entitlement program to a model known as premium support. But the move was blocked by Senate Republicans, who feared a political firestorm.
In the premium support model, the federal government would provide a fixed subsidy (or a voucher) to help seniors buy insurance on the open market. Participants would gradually pay a much greater share of the program cost than they do today.
Currently, payroll taxes pay for most of Medicare’s hospital insurance program (Part A) but all the rest, including Part B doctor coverage and the Part D drug benefit, are largely financed by taxpayers. Overall, the Medicare premiums seniors pay account for only about 38 percent of the program’s cost.
As Medicare costs rise, federal spending for the program increases in lockstep (so do premiums, but most of the cost is covered by taxpayers). Premium support would turn this model on its head. The subsidy might still rise each year, but very likely more slowly than projected medical cost inflation, thus gradually shifting more costs to beneficiaries.
In a version proposed a few years ago by Rep. Paul Ryan (R-WI), the burden would completely flip. Instead of seniors paying about one-third of the cost, they’d pay two-thirds.
The idea behind premium support is simple: If seniors have to pay more, they will have a financial incentive to keep costs down. Of course, critics fear that will result in poor care and, for many seniors, no access to health care at all as Medicare becomes unaffordable.
If the idea of premium support sounds familiar, it should. It is very much built on the same broad framework as the Affordable Care Act—private insurance purchased through a marketplace partially subsidized by the federal government.
Yet, in the strange ways of Washington, the parties find themselves in a bizarre role reversal. The GOP hates the ACA (the budget plan also calls for Congress to repeal it). And most Democrats, who largely back premium support for those under 65 through the ACA, flatly reject the idea for those over 65.
Special rules allow the Senate to approve the budget with only a majority vote, rather than the 60 vote supermajority that has become routine. As a result, GOP majorities in both chambers could ram through a Medicare rewrite even in the face of certain unanimous Democratic opposition.
But Senate Republicans blocked the idea. They knew that President Obama would veto any budget that included such a big Medicare change. And they also knew that Democrats would bludgeon Republicans on the issue in 2016, bad news both for the GOP’s presidential chances and for the fate of at least a half dozen incumbent Republican senators who face tough reelection battles.
Getting past the politics, does premium support make sense? It could, but only if carefully designed. The subsidy amounts would have to be sufficient to assure that low- and moderate-income seniors can still afford coverage. And most important, policymakers would have to figure out how to set the overall subsidy amount, a very complex choice.
The idea won’t go away. And if a Republican wins the White House in 2016, it is sure to become a major issue. But, for now at least, congressional Republicans have decided to keep the idea on a back-burner.