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Republicans have a clear plan to cut Medicare — but they may not go through with it

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Republicans have long supported a massive overhaul of Medicare, the health entitlement program for seniors, one that they argue will make the entitlement program more sustainable — but also would have seniors spend significantly more out of pocket.

Now, the party’s control of Washington opens the door to making that policy vision a reality.

Republicans have, under the leadership of House Speaker Rep. Paul Ryan, coalesced around supporting a “premium support” version of Medicare, where seniors get a fixed amount of money to shop for a health plan. They would choose between the traditional, public Medicare plan and a number of privately-run competitors.

Critics warn that this “voucherizing” of Medicare would be a fundamental shift in how the program works. It would no longer guarantee seniors affordable access to the public Medicare plan that they’ve had since 1965. Instead, they would get a set amount of money and, depending on where they lived, it may or may not cover the cost of buying into the public program.

The impetus to reform Medicare spending grows out of a concern about Medicare’s long-term financial stability, and whether the program will be able to absorb a generation of baby boomers about to age into the program. And the premium support idea has even attracted the support of some Democratic legislators, like liberal Oregon Sen. Ron Wyden, who co-authored a premium support plan with Ryan in 2014.

But just as Republicans seem to have a path that would allow them to pass Medicare reform — control of the White House, and both houses of Congress — the party has also become somewhat skittish on the idea, looking to prioritize Obamacare repeal instead. To understand why this idea might not make it to the top of the Republican policy agenda, you need to understand how premium support works.

Premium support for Medicare, explained

The version of premium support that congressional Republicans have coalesced around shows up in both House Speaker Paul Ryan’s Better Way plan as well as in the 2017 budget that Rep. Tom Price (R-GA), Trump’s pick to run Health and Human Services, oversaw.

It is most clearly outlined under the Ryan plan, which envisions Medicare shifting to a premium support model in 2024. Under that plan, a senior would shop for different insurance plans, some with higher premiums and some with lower. The senior would enroll in a plan, and the government would send the insurer a premium support payment directly — and the enrollee would make up any difference in their own premium.

“Premium support would be a fundamental change in how Medicare works,” says Tricia Neuman, who directs the Kaiser Family Foundation’s project on Medicare policy. “The idea is that each person would get a fixed maybe, not a fixed set of benefits. How it plays out would depend a lot on the details of the proposal.”

The size of the premium support payment is an important detail — but not one discussed in Better Way or the 2017 budget.

“Premium support plans have been laid out in general terms, but a lot of details matter,” says Neuman. “It’s not clear how the government would set the payments, whether they’d be indexed to grow at a certain rate, and what happens to people who don’t choose a plan. Are they guaranteed to get benefits?”

Rep. Ryan has done previous work on this topic that gives a sense of what Republicans think.

In the 2014 Ryan budget, Republicans propose offering a premium support payment that is equal to the cost of the second-lowest priced plan. For example: If you had five plans offering monthly premiums of $70, $80, $90, $100, and $110, the Ryan plan would provide seniors with $80 in premium support payment.

Seniors could decide whether to choose the $80 plan, and have the full price covered, or chip in $10 to $30 to buy one of the more expensive options. One of these options will be the public Medicare plan we currently have, but there’s no guarantee whether it would be a higher-cost or lower-cost option.

Why Republicans support premium support

Conservatives see this as a way to put downward pressure on the cost of the Medicare program, by forcing insurers to compete for seniors’ business.

“My view is that the major objective is to make beneficiaries more deeply aware and more deeply involved in the resource allocation decisions that affect them directly,” says Joe Antos, a health economist at the American Enterprise Institute who has written extensively on premium support.

Medicare is a big and expensive program. It is currently the federal government’s third-largest spending commitment, behind Social Security and defense spending. Medicare spending growth has slowed in recent years, making the arguments for reform somewhat less urgent. But tens of millions of Americans will age into the program in coming decades, which conservatives cite as a reason to continue pursuing reform.

Antos argues that, when insurers have to compete on price, they begin to demand lower prices from the doctors and hospitals they contract with. That, in turn, will push health care providers to become more economical — they might think twice about buying an expensive new piece of equipment that doesn’t deliver much value.

“The idea of being on a budgeted system sharpens the health care system’s view of what they can and can’t squeeze out of people,” says Antos. “They start asking questions like, do I buy a big piece of equipment? Do we have good information that it will bring our patients value?”

Steve Parente, a health economist at the University of Minnesota, argues that the change to premium support isn’t nearly as dramatic as Democrats often make it out to be. The Republican vision would still maintain a public Medicare plan that competes against private plans — just as happens now, as Medicare competes against private Medicare Advantage plans.

The difference would be not setting Medicare as the default option.

“Right now your default is the traditional Medicare program,” he says. “This won’t be the end of the world, it just takes change to get people to switch into more cost-effective plans.”

The bipartisan Ryan-Wyden Medicare premium support bill from 2014 included additional premium support for low-income seniors, and less help for those with more wealth.

“Guaranteeing a future for traditional Medicare is a big challenge and it is our hope that outlining areas where Democrats and Republicans can reach agreement will help Congress rise to that challenge,” Wyden said in a statement introducing the proposal.

Why Democrats fear premium support: it’s a stealthy way to cut Medicare

Most seniors currently pay a $105 monthly premium for Medicare coverage (which will rise to $134 in 2017), although some high-earning seniors are required to pay more and some low-income seniors pay nothing at all.

Premium support doesn’t have to increase seniors’ spending on Medicare; it all depends on how much help the program provides. But most Republican plans use premium support as a way to reduce health care spending. Price’s 2017 budget, for example, envisions that changes like these will reduce Medicare spending by $449 billion over the next decade.

The Congressional Budget Office has analyzed different premium support models. It has looked at one like the leading Republican proposal, to offer premium support tethered to the second-lowest cost plans. And it has looked at other ideas, like giving seniors’ a payment equal to the average cost of the plans.

These sound like small details, but they matter a huge amount for how much help seniors get — and how much they have to pay.

CBO estimates that if Medicare pegged premium support to the second-lowest cost plan, seniors would end up paying 11 percent more out-of-pocket. But if Medicare pegged premium support to the average plan cost, seniors’ spending would actually decline by 6 percent.

CBO estimates that, in the second scenario, seniors’ spending would decline because insurers would offer lower premiums in this newly-competitive environment. But that isn’t the type of premium support that Republicans have in mind.

“Most Medicare beneficiaries live on modest incomes and are not in a position to pay much more for their health care,” Paul Van de Water of the Center for Budget and Policy Priorities, a liberal think tank, writes of premium support. This type of premium support, he writes, would “significantly raise the out-of-pocket health costs that Medicare beneficiaries with modest incomes.”

Right now, seniors have a guarantee: They can have the public Medicare program at a stable premium, regardless of where they live. The Ryan model for premium support would erode that promise, potentially putting the cost of the traditional Medicare program out of reach for many.

Republicans’ top health care priority isn’t Medicare premium support. It’s Obamacare repeal.

Medicare premium support has not, so far seemed to be a key priority for Republicans.

For one, Republican legislators know that the idea is quite politically unpopular. Seventy percent of Americans prefer keeping Medicare as it is today, and only 31 percent of Republicans support moving to a premium support system.

Meanwhile, Democrats would be ready to pounce on any version of premium support that Republicans might introduce.

"I think what they [Democrats] would want is for the Republican leadership to plunge headfirst into the most extreme version of premium support,” AEI’s Antos says. “They would know they would win every election for the foreseeable future. Certainly leadership understands this, and that's the reason they're not going to do that."

What’s more, Republicans already have a top health care priority: repealing the Affordable Care Act. Leadership has spent significantly more time discussing their strategy for overhauling Obamacare than they have on mapping out a strategy for Medicare reform.

And premium support doesn’t seem to be an issue that is especially intriguing to Price, who Trump has selected to run Health and Human Services. He has spent much, much more time thinking about Obamacare repeal than he has about Medicare overhaul. His work as budget chair has largely stuck with the ideas that Ryan proposed when he held the position in years prior.

“Price’s biggest health care bill is the Empowering Patients Act [a plan to repeal and replace Obamacare],” Antos says. “And when you look at that, you don’t see much on Medicare in there.”