GOP Premium Support Plan Could Raise Medicare
Premiums In Many Parts of Country
A central part of the House Republican budget written
by Rep. Paul Ryan of Wisconsin, now GOP’s vice-presidential candidate;
also embraced by Mitt Romney
Rau, KHN Staff Writer
15, 2012 - The type of proposal championed by Republicans to overhaul
Medicare by giving beneficiaries a fixed amount of money to purchase
insurance could lead to significant increases in premium costs in some
parts of the country, according to a new study.
If the plan had been in place in 2010, six in 10
Medicare beneficiaries—about 25 million people both in traditional
Medicare and in private Medicare Advantage plans —would have faced
higher premiums if they didn’t switch to a cheaper plan, according to
researchers at the Kaiser Family Foundation. (KHN is an editorially
independent program of the foundation.)
modeled the impact of a generic version of premium support, under which
beneficiaries would receive a defined subsidy, or voucher, to buy health
insurance in a competitive market instead of getting a guaranteed set of
benefits as Medicare has traditionally provided. That payment would be
tied to the second lowest cost plan offered in an area or traditional
Medicare, whichever is lower.
kind of a change is a central part of the House Republican budget
written by Rep. Paul Ryan of Wisconsin, now the GOP’s vice-presidential
candidate, and it has also been embraced by GOP presidential nominee
Mitt Romney. Even a few Democrats have flirted with such a plan as a way
to leverage market efficiency to rein in the spiraling cost of Medicare.
The new study estimated how the plan would have
worked in 2010 by looking at the cost of traditional Medicare and
private Medicare Advantage plans around the country. The study’s authors
emphasized that their model was not an exact replica of any existing
proposal for a variety of reasons, including that most plans, among them
Ryan’s, wouldn’t phase in for a decade and even then would affect only
new Medicare beneficiaries.
The study found that 59 percent of Medicare
beneficiaries would have paid higher premiums in 2010 unless they
shifted into a cheaper plan. In California, Michigan, New Jersey, Nevada
and New York, average extra premiums would exceed $100 a month, and in
Florida they would exceed $200 a month, the study calculated.
Medicare spends vastly different amounts per
beneficiary around the country, ranging from less than $500 a month per
beneficiary in some places to more than $900 a month per beneficiary
That’s often because people in some areas of the
country are sicker and need more care; it’s also because providers in
some places favor more interventions and more expensive ones. In those
high-cost areas, beneficiaries would see significant monthly increases
in premiums if they remained in traditional Medicare. The study found
people in Los Angeles would have paid $260 more and people in Miami
would have paid $492 more, for instance.
In other regions where Medicare costs were low - such
as Alaska, Delaware, Hawaii, Wyoming and Washington, D.C. - people in
traditional Medicare would not pay more, but people in many private
Medicare Advantage plans would face higher premiums if they didn’t want
to change to traditional Medicare. People in Portland, Ore., for
instance, would have paid $211 more a month and people in Honolulu would
have paid $254 a month to stay in their preferred private plan. About
one in every four Medicare beneficiaries are now enrolled in these
private plans, some of which are preferred provider organizations while
others are HMOs.
Although the fight over premium support often has
been characterized as a battle between defenders of traditional Medicare
and proponents of private health plans, the study found that it could
have a substantial impact on people who enrolled in Medicare Advantage
plans. Nationwide, 88 percent of those beneficiaries would have paid
more to stay in their plans, averaging $87 more per month, if it had
been in place in 2010.
Of course, getting many beneficiaries to switch to
less expensive plans is how the architects of premium support envision
saving money. They say it will bring pressure on insurers, doctors and
hospitals to offer lower prices. The study noted, however, that such
shifts might mean significant changes in the type and quality of care
In some regions, the low cost plans might be HMOs,
which have tightly controlled networks of doctors and hospitals. If
beneficiaries switched from traditional Medicare to HMOs, they might not
be able to keep seeing their regular doctors or go to their preferred
hospital. In other areas, beneficiaries –perhaps people in private plans
that coordinate care – might not like shifting into less costly
"Beneficiaries' preferences and plan choices are
not purely driven by premiums, and some beneficiaries may not view the
low-cost plan, whether a private plan or traditional Medicare, as
optimal for meeting their individual needs and circumstances," wrote the
authors, led by analyst Gretchen Jacobson.
Other studies have found that only a small portion
of Medicare beneficiaries switch their Part D prescription drug or
Medicare Advantage plans each year, even when doing so could save them
money. "There are tradeoffs involved in making changes and we know from
Part D and Medicare Advantage that people don’t really change very
often," said Tricia Neuman, who oversees the foundation’s Medicare
In addition, the new study noted that some low-cost
plans might not be able to handle an influx of new beneficiaries. A
particularly glaring example is in Los Angeles County, where fewer than
10,000 beneficiaries are enrolled in one of the two lowest-cost plans,
while more than 900,000 beneficiaries are enrolled in traditional
Medicare or other plans.
The study did not estimate how much money the plan
would have saved Medicare. In a statement, the Romney campaign said: "As
the authors stress, this is not a study of the Romney-Ryan plan. Our
plan would always provide future beneficiaries guaranteed coverage
options with no increase in out-of-pocket costs from today's Medicare."
The Obama campaign trumpeted the study, saying it "demonstrates how
hollow" is Romney’s claim that the elderly would retain the option of
enrolling in traditional Medicare under their plan.
Joe Antos, a health care expert at the American
Enterprise Institute, said that the study is "the best technical study
so far of this sort," although he expected a premium support market
would be much more competitive than the current Medicare Advantage
market is, since the latter is guaranteed a certain payment by the
"The competition would be even more intense," he
said, especially since most Medicare beneficiaries would not be able to
afford anything more expensive than the benchmark plan, and thus
insurers would compete to meet those prices. "You just can't have high
costs if people can’t pay it," he said.
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