Aug. 23 (Bloomberg) -- Paul Ryan has likened his Medicare overhaul to the health-care coverage available to members of Congress. It differs in one main respect: It’s less generous.
Republican vice presidential candidate Ryan’s plan to revamp the health-care program for the elderly wouldn’t have the safeguards against rising costs included in the coverage that lawmakers and other federal workers receive.
Those differences, which help explain the savings claimed in Ryan’s budget, are sparking complaints that Republicans want to impose a plan on the elderly that’s inferior to their own. Ryan, a Wisconsin lawmaker, is chairman of the House Budget Committee.
“Their proposal would give seniors on Medicare a much worse deal than members of Congress have,” said Representative Chris Van Hollen of Maryland, the top Democrat on the Budget Committee.
Ryan’s proposal to tackle spiraling Medicare costs by offering seniors subsidies to buy private insurance is taking center stage in this year’s presidential contest.
Republicans reject the complaints, saying Ryan’s plan would harness market forces to control costs, ensuring seniors won’t face larger health-care bills.
“These desperate distortions are nothing more than an attempt to distract Americans from the fact that the President has already raided $716 billion from Medicare to fund Obamacare and has no plan to prevent it from going bankrupt,” said Brendan Buck, a Romney campaign spokesman. “Governor Romney and Congressman Ryan are the only ones with a plan that protects Medicare for today’s seniors and strengthens it for future generations.”
Federal Health Coverage
At issue is the Federal Employees Health Benefits program, the nation’s largest employer-sponsored health-insurance program. It covers more than 8 million civilian employees, retirees and their families, including members of Congress. Lawmakers participate in the $43 billion program on the same terms as other federal workers.
Much like Ryan’s Medicare proposal, the federal workers’ plan offers employees a menu of private-insurance options. As with Ryan’s plan, that’s designed to require insurance companies to hold down costs to compete for federal workers’ business. Also like in Ryan’s plan, the government shoulders much of the cost of premiums.
Ryan emphasizes the similarities.
“Future Medicare beneficiaries will be able to choose a plan the same way members of Congress do,” his budget proposal says.
The difference comes with how the government chips in. Under the federal employees’ program, the government covers a fixed share of the costs as determined by what’s known as the “fair share formula.” It amounts to about 70 percent of the program’s costs, according to the nonpartisan Congressional Budget Office.
Starting in 2023, Ryan’s plan would offer seniors a fixed-dollar amount of support based on a competitive bidding process. Aid would be pegged to the second-lowest bid by a health-insurance plan in a geographic area. Beneficiaries could choose more expensive plans, though they would have to pay more while those accepting the less costly plan would get a rebate.
The idea is that insurers would have to compete for seniors’ business, which would lower costs. If it doesn’t, Ryan’s budget has a backup plan -- a cap limiting annual spending increases to the rate of economic growth plus a half percent.
Critics say if costs exceed that cap -- as they sometimes have in the past -- seniors will bear a larger share of their health-care costs, something that isn’t possible with the federal workers’ plan because of the fair-share formula.
The difference comes down to who bears the risk of rising health-care costs, said Uwe Reinhardt, a health-care economist at Princeton University in New Jersey.
“It’s the allocation of risk,” he said. Under Ryan’s plan, “the risk of rapid health-spending inflation, should it happen, is borne by the elderly and with the congressmen, it’s taxpayers.”
If Ryan had offered to cover a fixed share of seniors’ health care, as with the federal workers’ program, his plan wouldn’t save much money, said Joe Antos, a health-care economist at the Washington-based American Enterprise Institute, which favors a free-market approach to public policy.
’Through the Roof’
“Costs would go through the roof,” Antos said. “If it’s a fixed share, with no cap on the total amount of spending, then I think CBO would naturally assume the total amount of spending will rise.”
The federal employees’ health-care program isn’t a good model for controlling retirees’ costs, said Paul Ginsburg, president of the Washington-based Center for Studying Health System Change. “I don’t think he would want to mimic the federal employees’ program,” he said.
President Barack Obama supports capping spending at the same level as Republicans though he’d have a board of specialists decide how to keep expenditures in check.
Ryan’s budget that passed the Republican-led House in April 2011 would probably shift costs to seniors because premium subsidies wouldn’t keep pace with health-care costs, according to CBO.
Ryan has since tinkered with his plan, loosening the spending restrictions and giving seniors an option to continue Medicare coverage. The CBO said earlier this year that the revised plan is too complicated to determine what might happen.
“CBO does not have the capability at this time to estimate effects of that sort,” the budget office said in a March report.
The chairman of Obama’s 2010 debt commission -- of which Ryan was a member -- said the federal employees’ program could help provide an answer. They recommended transforming the workers’ program into one like Ryan recommends for Medicare, saying it could serve as an experiment into whether his approach could save money in the much larger retirees’ program.
“A voucher or subsidy system holds significant promise of controlling costs, but also carries serious potential risks,” say the recommendations by former Republican Senator Alan Simpson and President Bill Clinton’s chief of staff Erskine Bowles. “If this type of premium support model successfully holds down costs without hindering quality of care,” that would be useful “in considering a premium support program for Medicare.”
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