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Could Congress replace the current Medicare system with a voucher program, as former Clinton budget director Alice Rivlin and House Budget Committee chairman Paul Ryan (R-WI) among others have suggested? It could if Republicans allow the 2010 health law to take effect and Democrats can bring themselves to stop defending a deeply flawed Medicare program.
In such a voucher system (sometimes called premium support), traditional Medicare would disappear. Instead, government would give seniors a subsidy they could use to buy private insurance. But such a plan could never succeed without a robust individual insurance market.
Get past all the nasty partisan rhetoric and it is pretty clear: The 2010 law—the Affordable Care Act—creates exactly the foundation for that market.
For vouchers to work, insurance companies would have to sell coverage at an affordable price to all, regardless of health status. Seniors would need a way to shop for insurance. To keep premiums reasonably priced, consumers would have to be required, or at least very strongly nudged, to buy coverage before they got sick. Finally, since premiums would still be expensive for older buyers, the government would have to provide seniors with a significant subsidy to make the product affordable.
As it happens, the first three elements are exactly the model of the ACA. The law includes insurance exchanges, a requirement that private insurers make coverage available to everyone regardless of health status, and the obligation that everyone have at least basic coverage. It even includes subsidies for some low-income buyers. Additional premium support for seniors would be the final piece of the puzzle.
Keep in mind that when Medicare was enacted in 1965, older Americans could not purchase affordable private insurance. There was no individual market for them and few employers offered retiree coverage. Medicare made insurance available to seniors, although through a system encrusted by disincentives to quality care.
Five decades later the market failures of pre-1965 remain. Eighty percent of those 65 and older suffer from at least one chronic disease and half suffer from two or more. Yet, there is still no functioning individual insurance market for people with pre-existing health problems. The Commonwealth Fund reports that nearly half of those with health problems reported they were either denied insurance, charged rates they could not afford, or had their illness excluded from coverage. And while some employers do sponsor retiree insurance, it is usually only for those under 65, fast disappearing, and increasingly expensive. As a result, dumping nearly 50 million Medicare recipients on to a non-existent private insurance market would be both treacherous for seniors and a political non-starter.
But once all the elements of the ACA were pulled together, there would be no need for Medicare. Seniors would be able to buy affordable private coverage through the same sort of exchanges as tens of millions of working people. Insurance companies would compete on benefits and price and, importantly, take on the burden of cost containment.
The idea is not as radical at it sounds. Today, in fact, millions of seniors participate in a similar model when they buy private Medicare Supplement (Medigap) insurance. Others have enrolled in Medicare Advantage plans—a private insurance alternative to traditional Medicare (although one where subsidies are far more generous than are likely under a broad voucher system). Federal employees, including members of Congress, are also covered by subsidized private insurance they buy through an exchange-like market.
Rivlin gets all this. But, oddly, while many Republicans support major Medicare restructuring, they are doing everything they can to destroy the very system of universal private insurance that would make vouchers feasible. The question to ask them: What private insurance structure do they imagine would replace Medicare? Somehow, I don’t think medical malpractice reform and health savings accounts will do the trick.
So here’s the first step to a deal: Republicans call a cease-fire in their partisan war on Obamacare and Democrats stop defending a Medicare system that is not only busting the budget but is failing chronically–ill seniors.
Building this structure will not be easy and many key details have to resolved. How big would subsidies be, especially for very poor seniors; what benefits would be offered; and how would the exchanges work for elderly buyers? Resolving these complex issues will take the best minds of both parties working together. Any takers?
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