Good News for Paul Ryan's Medicare Plan

Paul Ryan's plan for Medicare premium support gets some help from the Congressional Budget Office.
The Congressional Budget Office has given Paul Ryan some reasons to smile. Photographer: T.J. Kirkpatrick/Getty Images

It didn't attract much attention, but the Congressional Budget Office has changed the way it looks at the Republican plan for Medicare -- and its new look at the issue is good news for the plan's chief sponsor, House Budget Committee Chairman Paul Ryan.

Ryan's plan has gone through several versions, but all of them have been based on the old bipartisan idea of "premium support." The idea was that instead of paying for senior citizens' medical services directly, the federal government would help them purchase private coverage plans. It would offer enough help to let seniors buy a benefits package comparable to today's at no additional cost to them. But to buy more than that they'd have to pay extra, thus giving them an incentive to economize.

Supporters of the idea always expected the resulting competition to yield savings, but the CBO was unwilling or unable to estimate what those savings would be. So in the budgets he proposed from 2011 to 2013, Ryan included a backstop to generate savings that the CBO would recognize: a cap on Medicare spending that would go into effect if premium support didn't save enough money. In September 2013, though, the CBO announced that it had "developed significant new tools to analyze such a system in greater depth than in the past."

It looked at a version of premium support similar to Ryan's 2013 plan, one where the level of support was based on the second-lowest bid that companies made for covering basic benefits. It found that the plan would save the federal government $45 billion in 2020 compared with current law and reduce seniors' out-of-pocket expenses -- but it would increase their premiums by more than it cut. Ryan no longer needed the backstop of a cap, so he dropped it.

Because he also wanted to avoid raising costs for seniors, Ryan made another change to the plan. Instead of setting the federal subsidy for each beneficiary at the level of the second-lowest bid, the 2014 version of his plan sets it at the level of the average bid. The CBO still projects savings for the federal government -- $15 billion -- but it shows that beneficiaries will pay less, too.

Sahil Kapur of Talking Points Memo is one of the few reporters to notice these developments, which he describes as a "dramatic change" by Ryan. Another way of looking at it, though, is that Ryan's basic approach remains the same: He always thought premium support would yield savings, which is why he favored it in the first place, and now he has won the CBO's agreement. The result is a plan that's more politically attractive. Under the old version, Democrats could argue that premium support wouldn't work and the cap would cut seniors' benefits. Now there is no cap to cut their benefits, and the CBO agrees with Ryan on the effects of premium support.

Advantage Ryan, assuming more people notice.

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