The premium support pilot program didn’t work
by digby
I’ve written about this before, but it really can’t be emphasized enough:
The co-creator of the concept that Rep. Paul Ryan (R-Wis.) is relying upon to reform Medicare no longer thinks it will work. Henry Aaron, now of the Brookings Institution, got the chance to tell Ryan exactly why at a recent Capitol Hill hearing.
Aaron and former Urban Institute president Robert Reischauer came up with the idea of “premium support” in 1995, after the failure of then-First Lady Hillary Clinton’s bid to reform the health care system.
The basic idea is simple: let people pick their health insurers in the private market, subsidize the premiums, and competition will drive down costs. That’s the theory behind Ryan’s plan, recently endorsed by Sen. Ron Wyden (D-Ore.) in a white paper the two wrote.
It differs from Aaron’s original vision — in part because it has fewer protections for beneficiaries — but the essential concept is the same. Aaron said this isn’t the time to test it out.
“In the years since Bob Reischauer and I put this Idea forward, I’ve changed my mind,” Aaron said at a hearing of the House Ways and Means Committee last week.
The big reason is that Aaron has seen no evidence since the two men came up with the idea that their assumptions have been borne out.
A key assumption was that the insurance industry or government would figure out how better to adjust risk among companies so that if one insurer suddenly was saddled with an unusually expensive population, it would share the costs with other insurers or the government. That would keep costs down because it removes some of the incentive to cherry-pick healthier customers or shun sicker ones.
But in the case of Medicare Advantage, similar to premium support in that Medicare pays a private insurer to cover someone, the attempts at risk adjustment have raised costs by about 8 percent, Aaron noted. On top of that, although there are many Medicare Advantage plans in existence, they are not cheaper than traditional Medicare, and there’s little to suggest they will get cheaper.
“The evidence to date is not encouraging,” Aaron said, noting a recent study that isolated the effects of competition on Medicare Advantage costs from government-related influences. “After controlling for all those factors, Medicare Advantage plans are more expensive than is traditional Medicare.”
I wonder how he feels about Alice Rivlin more or less calling him a liar?
Progressives are increasingly concerned that others in the Democratic Party will embrace that and additional ideas promoted by Ryan to cut the budget deficit. Indeed, the latest Ryan Medicare plan is championed not just by Breaux but by another influential Democrat, Alice Rivlin, the former head of the White House’s Office of the Management and Budget in the Clinton administration.
Rivlin, who also testified Friday, recently told The Huffington Post that Democrats “are lying, not to put too fine a point on it,” when they say that premium support will end Medicare.
I guess Aaron isn’t technically saying that premium support will end Medicare when he says that it won’t work, but it’s hard to see what else it would lead to.