Ex-CBO Chief Sees Premium Support Cutting Health Costs

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By Jonathan Nicholson

Feb. 29 — If House Republicans put forth a budget plan this year, it will likely again propose giving Medicare recipients the ability to use federal dollars to shop for private insurance. So-called premium support has been a ripe political target for Democrats in Congress for years.

While Democratic politicians may look forward to dusting off their talking points on what they call Medicare voucherization, the fact remains: In Democratic policy circles, premium support is often seen as another way to help hold down medical costs.

The latest high-profile policy wonk to speak favorably of premium support is Douglas Elmendorf, former director of the Congressional Budget Office and a former Clinton administration Treasury Department official.

‘Strengthening Competitive Forces.'

Elmendorf included a version of premium support in a lecture he gave in November at Harvard University looking at the next steps for health care in the wake of the Affordable Care Act.

In a recent interview with Bloomberg BNA, Elmendorf said premium support was one way to use market forces to bring down health care costs.

“If we're going to restrain the growth of health spending in this country in a way that I think we should, then we need to either give the government more power or we need to strengthen competitive forces,” Elmendorf said. “Given the views of people in this country, strengthening competitive forces is likely to be more acceptable to more people.”

Elmendorf said premium support would be similar to the existing Medicare Advantage program, in which private insurers compete for Medicare recipients to sign up with them, often as part of a health maintenance organization or preferred provider plan, as an alternative to traditional fee-for-service Medicare.

“We have private providers covering Medicare beneficiaries through Medicare Advantage, but the sort of competition that creates can be strengthened by moving toward a premium support system,” Elmendorf said. “I think a premium support system with the right sorts of protections can increase competitive pressure while still ensuring that Medicare beneficiaries receive the sort of health care that we as a society think they should receive.”

Wyden, Rivlin Proposals

Elmendorf's comments do not sound that much different from how the summary of House Republicans' budget adopted in 2015 described its premium support proposal. That proposal made such a system optional for Medicare recipients, beginning in 2024.

“Moving to a premium support model would give seniors more freedom to choose the best plan for them and would force providers to compete against each other on price and quality. This means the program would work better for patients now and save the program for future generations of seniors,” the budget summary said.

That similarity, though, has not kept Democrats from seizing on the issue to criticize Republicans' fiscal plans. House Democratic Leader Nancy Pelosi (Calif.) said Feb. 11, “The Ryan budget—that is one that I call the ‘Road to Ruin'—has again undermined Social Security, voucherizes Medicare, block-grants Medicaid; very harmful to seniors,” she said.

However, former Clinton-era Office of Management and Budget Director Alice Rivlin and current Senate Finance Committee ranking member Ron Wyden (D-Ore.) have endorsed versions of premium support. Wyden co-wrote a proposal with Ryan in 2011; Rivlin wrote one in 2010.

Debate in ‘Different Place.'

No legislation ever emerged from the Wyden-Ryan proposal and Wyden told Bloomberg BNA that opposition to premium support by former House Majority Leader Eric Cantor (R-Va.), who lost his bid for reelection in 2014, pushed the idea off the table and Wyden has moved on. Now his focus is on improving care of chronic conditions, he said.

“I think the agenda is in a completely different place and it involves chronic care,” Wyden said. He said he and several lawmakers from both sides of the aisle, including Sen. Johnny Isakson (R-Ga.), Rep. Peter Welch (D-Vt.), Rep. Erik Paulsen (R-Minn.) and Senate Finance Chairman Orrin Hatch (R-Utah) are looking at the issue.

“I think there is a general recognition that this issue has just been missed. The transformation of Medicare over the last few years, it really didn't come up in the Affordable Care Act debate. You didn't hear people talk about chronic illness,” Wyden said. “So I think the debate is in a different place.”

While at least the concept of premium support may have bipartisan advocates, its details are often subject to fierce debate. How to set the benefit amounts to keep costs down but not leave beneficiaries with a growing share of costs over time has been a focal point of policy disagreements.

Depends on System Design

“A premium support system can shift a lot of extra costs to beneficiaries, but it doesn't have to. It depends on how that system is designed,” Elmendorf said. “I think it is possible to design a system that would both save some money for the federal government and save some money for beneficiaries on average and I think that's the appropriate direction to proceed.”

Rep. Steny Hoyer (Md.), the second-ranking Democrat in the House, said Democrats see House Republican premium support plans as an extension of past attempts to privatize or turn into block grants other programs, leaving them to receive less funding over time. Thus, he said, Democrats will be critical of it in a Republican budget.

“To some degree, we think premium support is the same thing, and of course [House Speaker Paul Ryan, R-Wis.] has proposed this over a long period of time, and we think what happens is it ends up being substantially less support, and that seniors, in particular, end up paying a lot higher bill,” he said.

Resemblance to ACA?

“That does not mean, though, that when you talk about Alice Rivlin, various others, Ron Wyden and others who worked on this, that it is not worth consideration,” Hoyer said. “But not in a way that is, I think, superficial in the sense that a budget document is a political document, on both sides of the aisle.”

Elmendorf said he has not had much reaction since he has stated his views on premium support. But he said partisans on both sides have overlooked the idea's resemblance to another controversial health care initiative: the individual insurance marketplaces at the heart of the 2010 health care overhaul.

“There is much more similarity between premium support in Medicare and the insurance marketplaces under the Affordable Care Act than either Democrats or Republicans generally acknowledge,” he said.

To contact the reporter on this story: Jonathan Nicholson in Washington at jnicholson@bna.com

To contact the editor responsible for this story: Heather Rothman at hrothman@bna.com