Republicans’ Medicare Fix – Defined Benefit Becomes Defined Contribution

Republicans’ proposals for Medicare are quite different than the Democrats’ in
that they begin with fundamental structural changes that will convert Medicare
from a defined benefit to a defined contribution plan. The Democrat’s plan, see
my last post, approaches the fix mainly with price controls. 


realize that Medicare will not be able to continue on its current track.
Something has to change since the country will simply not be able to afford the
inexorable growth and expenditures. But politicians do not like to take away
entitlements so proposals generally are couched in vague terms and often with
positions that are unrealistic. 


Congressman Paul Ryan, chair of the House Budget Committee and the
Republication Vice-Presidential nominee in 2012, presented a proposal about two
years ago embedded in the House budget proposal. It was passed in 2011 in the
House with all no votes from Democrats and died in the Senate. But then, after
negotiations with Senator Ron Wyden, a Democrat, they offered a joint
bipartisan plan, one that few other Democrats have endorsed. The essence is to
allow individuals to stay with original Medicare or select a plan from a
private insurer that offers the same benefits as Medicare. It has no effect
until 2023, i.e. only affecting those less than age 55 today. At that time, the
age of Medicare eligibility would gradually rise over ten years from age 65 to
age 67. Second, each beneficiary could choose to remain with traditional
Medicare or chose a plan from a private insurer. The government would pay a set
amount (“premium support”) towards either original Medicare or the private
plan; the individual would have to pay any overage. The amount of premium
support, according to the proposal, would be equal to the second lowest plan among
the competing insurers, including Medicare, during the first year. Individuals
of limited means would be able to purchase at discounted rates. The annual rate
of rise of premium support would be limited to the rate of rise of the GDP plus
0.5%. This means that if expenses and hence premiums rose at a greater clip,
the individual would have to shoulder the excess. In short, the Republican (or
the  Wyden-Ryan) plan counts on
competition in the marketplace to drive down costs. In practice, this is very
similar to the way the Part D drug benefit works today. Thus Republicans point
to the success of Part D to bolster their claim. The Democrats fault this plan
in that if costs are not controlled, the onus falls on the enrollee, the one
most vulnerable, especially in older ages, and not the insurer nor the


the Republicans also state that they would repeal or largely repeal the ACA,
then the added benefits to Medicare enrollees found in the ACA such as the
annual health and wellness review and the preventive care/screening at no cost
would presumably be repealed along with the IPAB and the enhanced reimbursement
to PCPs. Presumably although silent on the issue, the Republican plan would
also be to cut physician reimbursement by the formula driven 27% (or whatever
amount is calculated in the future) of the SGR although, again, it is is very
unlikely that either Republicans or Democrats will ever allow this to  happen.


end result of the Republican’s plan (or Ryan-Wyden bipartisan plan) would be to
cut the rate of growth of Medicare to about 3.5%, the same as the Democrats’
plan but using a much different methodology.


approaches, two very different methodologies, each attempting to achieve some
slowing of the rate of rise of Medicare cost escalation. Both have pros and
cons. Some thought that after the 2012 election, the parties would come
together and develop a widely bipartisan plan endorsed by many on each side of
the aisle but that has not happened nor has there even been reasoned attempts
at bipartisan compromise – too bad because it is surely needed. Our elected
representatives should come together to find a path forward rather than bicker
and look for “points” to score against each other. That is not governing nor is
it what they were elected to do. 


next post will describe how Medicare could improve primary care quality and
reduce costs beginning immediately.