The Problems with the Ryan-Wyden Medicare Proposal

March 19, 2012 at 2:51 pm

The budget that House Budget Committee Chairman Paul Ryan (R-WI) will unveil tomorrow is expected to include a Medicare “premium support” proposal that he and Senator Ron Wyden (D-OR) announced last year.  Our new paper explains the serious problems with the Ryan-Wyden plan.

Premium support would replace Medicare’s guarantee of health coverage with a flat payment, or voucher, that beneficiaries would use to buy private health insurance or traditional Medicare.  Although billed as a kinder, gentler form of premium support, the Ryan-Wyden plan has the same basic features as earlier proposals.  It is similar to a 1995 proposal from then-House Speaker Newt Gingrich that Gingrich said would have caused traditional Medicare to “wither on the vine.”

The Ryan-Wyden proposal would:

  • Shift substantial costs to Medicare beneficiaries rather than protect them from cost increases — in part because the value of the voucher would likely fail to keep pace with health care costs.
  • Likely lead to the gradual demise of traditional Medicare by making the pool of Medicare beneficiaries smaller, older, and sicker — and increasingly costly to cover.
  • Produce few budgetary savings beyond those that the health reform law already calls for, since both plans have the same target growth rate for Medicare costs.

Some advocates of premium support falsely claim that it is necessary to keep Medicare from going bankrupt.  In reality, health reform has significantly improved Medicare’s long-term financial outlook, and the program is not on the verge of  shutting down.  Medicare’s trustees estimate that, even without any changes to the program, Medicare’s Hospital Insurance trust fund can pay 100 percent of the program’s hospital insurance costs through 2024; at that point, the payroll taxes and other revenue deposited in the trust fund will be sufficient to pay 90 percent of those costs.

The American people — a large majority of whom oppose premium support, according to a recent Kaiser Family Foundation poll — shouldn’t let scare tactics frighten them into supporting radical and harmful Medicare changes.

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More About Paul N. Van de Water

Paul N. Van de Water

Paul N. Van de Water is a Senior Fellow at the Center on Budget and Policy Priorities, where he specializes in Medicare, Social Security, and health coverage issues.

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6 Comments Add Yours ↓

Comments are listed in reverse chronological order.

  1. Kathryn Terhune Cotton #

    I am sadly disappointed in Senator Wyden. He has usually been on the side of his constituents – even the poor ones.

  2. Jan Baer #

    It seems unlikely that private insurers would actually want those who qualify for Medicare, and how could the premiums possibly be affordable? This proposal might not be an “easy sell” with insurers, even if they stand to rake in gross subsidies from the federal government.

  3. bruce kinosian #

    Rather than insist on preserving an 1960s-style public indemnity insurance program, why not accept the challenge of FFS competition in Medicare, in exchange for a competing public plan for those less than 65? With private plans “requiring” 20% in admin costs to run, compared to Medicare’s 2.5%, it should be clear who the winner should be, if the premiums were appropriately risk-adjusted using the newer HCC model. (all the “cherries” wouldn’t come with much juice for the private plans).
    This is actually an opportunity to expand the competitive public sphere.
    Further, CMS could set prices based on “adjusted” international comparisons (by outcome-matched procedure), which would produce a further substantial savings.

    • Paul Van de Water #

      That’s an interesting idea, although it would be very hard to achieve in the current political environment. I’m less sanguine that you are, though, about current risk-adjustment technology. Tom Rice and Katherine Desmond have shown that even relatively modest imperfections in risk adjustment can lead to significant increases in premiums and decreases in enrollment for traditional Medicare in a premium-support system (

  4. Max Entropy #

    There’s a factual error in the second paragraph. Speaker Gingrich didn’t call for Medicare to “wither on the vine.” He called for HCFA to do this. There’s a big difference. The media in the subsequent “mediscare” campaign reported this error repeatedly so the confusion is understandable.

    • Paul Van de Water #

      Thank you for your comment. This issue has been the subject of considerable discussion, but as George Hager has written in the Fiscal Times, “While Newt’s defenders insist to this day that he was referring only to the Medicare bureaucracy, that’s a distinction without a difference. Without a bureaucracy to run it, traditional Medicare couldn’t exist.”

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