Premium support for Medicare a terrible idea

Caroline Poplin | Commentary

In the proposed Medicare reform called “premium support,” the federal government would give each senior a voucher for, say $8,000, to buy private insurance. Any senior who wished, and could afford it, could add money to buy a better plan.

Premium support is a terrible idea, but one that is steadily gaining traction not only among Republicans but also with some Democrats. In late December Sen. Ron Wyden, D-Ore., joined with Rep. Paul Ryan, R-Wis., to sponsor just such a plan.

Of course, premium support could instantly reduce the cost of Medicare to whatever level Congress chose — Medicare would just divide the total appropriation by the number of seniors. As critics recognized immediately, however, a voucher plan would not reduce the cost of care, merely shift it to the beneficiaries, particularly if the amount of the voucher rose more slowly than health care costs. Seniors who could not afford to supplement the voucher would have to make due with less coverage, and less care.

Another problem with premium support has attracted less attention: It reintroduces insurance companies into a system that currently functions just fine without them. Premiums would have to cover not just the cost of care, as now, but insurance companies’ administrative expenses and profits, “limited” by the Affordable Care Act to 20 percent of revenue.

What would we get for the additional money? There is no evidence that private insurers drive down the cost of health care better than the federal government — the Medicare Advantage program (Medicare pays private insurers to offer Medicare benefits) shows just the opposite: It costs more than standard Medicare. But, say the advocates, premium support would give seniors a choice.

Usually Americans like choice.

However, the market for health insurance is peculiar. In a typical insurance market, everyone is at the same low risk for the adverse event, which occurs randomly, rarely, and at predictable cost — think auto accidents. Health care is just the opposite — illness is chronic, expensive and predictable: if you have a pre-existing condition like high blood pressure, your risk of stroke or heart attack goes up, especially if you have already had one.

Among seniors, these risks are not randomly distributed: something like 20 percent of Medicare beneficiaries are responsible for 80 percent of the cost.

Insurance companies will use “choice” in Medicare as they do now in the private market, as an opportunity to separate the profitable healthy from the unprofitable sick. Plans with high deductibles and high co-pays, (gym memberships!) will appeal to the healthy and the wealthy: the wealthy can handle the out-of-pocket costs, and the healthy can gamble that they will not get sick. Since such plans don’t help the high cost, chronically ill, few will join, the insurers’ costs will be low, and they can offer good value to their most profitable customers.

Frail and sick, frequently poor, elderly — the people who need care the most — will be left together in expensive plans with limited benefits, just as in the under-65 market now.

But of course, that defeats the whole purpose of insurance. The great thing about today’s Medicare is that everyone is in the same pool: expenses are spread across the entire elderly population, rich and poor, healthy and sick.

Politicians love premium support because they firmly believe that Medicare costs are skyrocketing because seniors demand too much health care, wasteful care, because they don’t pay for it themselves: taxpayers do. According to Washington, seniors regard Medicare as an all-you-can-eat medical buffet. Their solution? Force Medicare beneficiaries who want more to pay more, and if all they can afford are minimum benefits, that is all they should have.

But that is not rationing, since they will have freely “chosen” those plans.

The idea of premium support, then, is to control the cost of Medicare by shifting costs to beneficiaries, and reducing benefits, while preserving profits for insurers, doctors and hospitals.

Oddly, no other advanced democracy uses premium support — their systems are closer to traditional Medicare. Yet these countries cover all their citizens, and get better health outcomes than we do, for a fraction of what we pay. Their plans cover virtually all health services, with limited co-pays or none at all.

What is their secret? Price control.

Americans pay the highest prices in the world for health care — for doctors, drugs, medical equipment, everything. Medicare costs are lower and have grown more slowly than those of the private sector because Medicare already limits the fees it pays to doctors and hospitals. It can do much more. By extending those controls to drugs, equipment, and other services, we can improve, rather than reduce, care.

Americans can stick to free-market ideology, or go with a European-style system that actually works: It is our choice.

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ABOUT THE WRITER

Caroline Poplin, a physician and lawyer, is a consultant to Social Security Administration and law firms. Readers may send her email at: poplinaya.yale.edu.

This essay is available to McClatchy-Tribune News Service subscribers. McClatchy-Tribune did not subsidize the writing of this column; the opinions are those of the writer and do not necessarily represent the views of McClatchy-Tribune or its editors.

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(c) 2012, McClatchy-Tribune Information Services

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