The Problems with “Premium Support” Medicare Reform Plans

Plans to reform Medicare are popping up like spring daffodils. Most would replace traditional Medicare with something called ‘premium support’ that is, in fact, a simple voucher — a flat dollar payment that recipients could use to buy insurance.

Vouchers have acquired a bad reputation because they are linked to some economic index that would not grow as fast as health care costs. As a result, voucher plans off-load an ever-increasing share of health care costs on the elderly, disabled, and poor.

Premium support plans would not do that because support payments would be linked to average health care costs. In addition, premium support plans have other protections for enrollees not present in voucher plans to promote informed choice and discourage insurers from engaging in socially wasteful competition to enroll mostly the healthy. Plan savings could not come from simply shifting burdens to recipients, but would have to come through improvements in the delivery of health care

All of the recently proposed plans would link payments to the more-slowly-growing economic indices. The plan put forward by Rep. Paul Ryan as chair of the House Budget Committee would link voucher payments to consumer prices. Because consumer prices rise so much more slowly than health costs, the Congressional Budget Office estimates that the share of total costs patients would be forced to pay out of pocket would more than double by 2030.

An earlier plan, cosponsored by Ryan and my colleague, Alice Rivlin, would suffer from the same flaw, but to a smaller degree, because the voucher would be linked to the growth of gross domestic product plus 1 percentage point.

But the fundamental problem with all voucher plans, and in fact with premium support, is that they contain no mechanism for promoting improved health care delivery. In that respect, as in many others, the Affordable Care Act is far superior because it sets up demonstrations, pilots, and experiments to identify new methods of paying for and delivering care that embody virtually every extant idea for reforming the actual delivery of health care.

For more details see http://www.nejm.org/doi/full/10.1056/NEJMp1103764 and http://healthaffairs.org/blog/2011/04/06/vouchers-or-premium-support-whats-in-a-name/.