GOP lawmakers weigh privatizing Medicare with exchanges

A former Clinton budget director is among those promoting an insurance exchange, but congressional Democrats remain opposed to privatizing entitlement programs.

By Charles Fiegl — Posted April 4, 2011

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Saving Medicare for future generations could involve creating private health insurance exchanges for the program similar to those being developed under the national health system reform law.

The House Budget Committee held a March 17 hearing to discuss such a plan to keep the Medicare program from going broke. Entitlement reforms can be phased in gradually, but Congress must act quickly, said Rep. Paul Ryan (R, Wis.), the committee's chair.

"For the past several months, a number of us have been saying we need to have a serious, honest conversation with the American people about these problems," Ryan said. "The time for that conversation is now -- and I firmly believe the American people are ready for it. They have had enough instability in their lives lately, and they deserve a federal health and retirement safety net they can count on."

In an earlier budget plan, he proposed an insurance voucher system to replace Medicare.

Panel Republicans invited Alice Rivlin, a former budget director in the Clinton administration, to discuss her work on the Bipartisan Policy Center's Task Force on Debt Reduction. Headed by Rivlin and former Sen. Pete Domenici (R, N.M.), the task force produced recommendations to overhaul Medicare, Medicaid and Social Security -- programs that together accounted for 74% of mandatory federal spending in 2010, according to the Congressional Budget Office.

For Medicare, the proposed Rivlin-Domenici reforms would raise Part B premiums from 25% to 35% of program costs over five years, leverage the program's buying power to increase rebates from drug companies, reform the beneficiary co-payment structure, and bundle payments for post-acute care to encourage efficiency and cost reduction. Starting in 2018, current Medicare patients also would have the choice to remain in traditional fee-for-service or access a private health plan through a Medicare exchange. However, it would not retain a fee-for-service option for new enrollees.

"Asking beneficiaries to pay more for their Medicare coverage mirrors what has happened in private insurance over the past decade, with increases in patient cost sharing to keep premium growth from exceeding income growth by too large a margin," Rivlin said in her testimony to the committee.

The approach would phase in reforms more rapidly than a separate plan drafted in part by Rivlin and Ryan when they worked on President Obama's debt commission in 2010. For example, that proposal would not affect new enrollees until 2021.

When Ryan cited rising health care costs, or health inflation, as a reason for the fiscal problems faced by Medicare and other public health programs, James Capretta, a fellow with the Ethics and Public Policy Center, responded that taxpayers have been underwriting health inflation for years. Public health programs are not made to produce and reward efficiency, Capretta said.

"The Medicare program has a very difficult time doing that because you have to pick winners and losers," he said. "The private system can do that a lot better than a public system."

Instead, public systems attempt to manage costs by paying lower rates to everyone, he added.

Congressional Democrats have opposed plans to privatize Medicare, and they dispute that the private market is better at controlling costs. Rep. Chris Van Hollen (D, Md.) said private health insurance premiums more than doubled between 2000 and 2008. Also, private Medicare Advantage plans typically have received greater subsidies than traditional fee for service.

"Americans would be surprised to learn the private market is working really well," Van Hollen said.

Discussion on entitlement reform is not just limited to the lower chamber of Congress. Senate lawmakers have asked Obama to support a broad-based approach to solving the nation's debt problems. "Specifically, we hope that the discussion will include discretionary spending cuts, entitlement changes and tax reform," a March 18 letter signed by 64 senators said.

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Medicare's ticking clock

Medicare trustees keeping tabs on the program's future say the long-term outlook is unsustainable without major reforms.

2012: Hospital trust fund revenues drop below projected annual expenditures.
2029: The Part A trust fund is exhausted.
2040: Spending on Part B reaches 3.5% of gross domestic product, up from 1.9% in 2009.

Source: 2010 Social Security and Medicare Boards of Trustees annual reports (link)

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