U.S. Rep. Paul Ryan’s (R-Wis.) and U.S. Sen. Ron Wyden’s (D-Ore.) plan for Medicare reform, released in December 2011, is very similar to the Rivlin-Domenici proposal. The main difference is that this plan also maintains traditional Medicare as the default option, which Ryan had previously taken out in his Fiscal Year 2012 budget proposal, “The Path to Prosperity: Restoring America’s Promise.”
Because of the Wyden-Ryan Plan’s similarities to previous plans, including premium support payments and a Medicare exchange marketplace, it has been criticized by some economists for failing to adequately address many of the real problems endemic to health care reform. For example, analyses of premium support subsidies have noted that the payments do not grow at the same rate of per capita health care costs, thereby shifting more costs onto the insured. Princeton University economist Uwe Reinhardt points this out in his New York Times Economix blog, stating that “genuine premium support models are designed to protect Medicare beneficiaries better against rapidly rising health care costs in general than would most voucher plans indexed to magnitudes that grow less rapidly than does health spending. By the design of the defined contribution, the Wyden-Ryan voucher plan would be able to constrain the growth of taxpayer financing for Medicare, simply by shifting the risk of rapid health care cost increases from taxpayers into the household budgets of the elderly.”
The other common criticism of the plan is its assertion that a Medicare exchange will better control health care costs, due to increased competition among private insurers. Economists question this assumption, pointing out that Medicare spending per beneficiary has grown less than private insurance premiums during the last decade, due to Medicare’s significantly lower administrative costs and not-for-profit interest. Medicare has also traditionally been able to pay lower provider rates than the private insurance companies, due to its market power and cost containment rules. Critics argue that under the Wyden-Ryan Plan, the increased number of private plans will lead to a more fragmented market. As a result, each individual insurer’s bargaining power versus providers’ power will be weaker, thus hindering the private insurer’s ability to negotiate lower prices effectively. Therefore, many economists are not confident that dismantling traditional Medicare in favor of a competitive Medicare exchange marketplace will successfully control costs, and some even contend that costs are more likely to rise.
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