Economist Nails Romney and Ryan for Distorting His Work

Hey Republicans! Stop Misusing My Medicare Study!

Quote :

Supporters for the Romney-Ryan approach to Medicare have a new talking point. They say a new study by “three liberal Harvard economists” proves that the plan’s competition will reduce health care costs without harming beneficiaries. But the study doesn’t say that.

And I should know. I’m one of the economists who wrote it.

Both Mitt Romney and Paul Ryan have said they would like to convert Medicare into a "premium support" (nee voucher) system. Their plans are different, and Ryan himself has proposed several versions. But they share a basic architecture. Starting ten years from now, new retirees would not receive a Medicare card, as they would today. Instead, they would receive a voucher and shop for an insurance policy in a specially regulated market.

The voucher would equal the price of the second-cheapest plan in the market, although its value would be less if insurance prices rose faster than a pre-determined spending cap (of gross domestic product plus half a percentage point)—as they are projected to do. Both Romney and Ryan now say that traditional Medicare, the government-run insurance program, would be among the options in the marketplace. But they would not guarantee that voucher can pay for it. In fact, that’s very much the point of the proposal: To create more competition between Medicare and private plans, even if that means Medicare ends up costing more than the vouchers are worth.

How would this affect seniors? In particular, how many seniors would end up paying more to stay in traditional Medicare?

That’s the question that Zirui Song, Michael Chernew, and I set out to answer in the study, which was published in the Journal of the American Medical Association. To do this, we examined what would have happened if, today, something like the Romney-Ryan plan were in place: In other words, if today’s seniors were getting vouchers, how much would those vouchers be worth?

We found that 24 million seniors, or about two-thirds of the people presently enrolled in the traditional Medicare program, would have to pay more—specifically, an average of $64 per month or $768 per year. Some seniors already enroll in private plans, as part of the “Medicare Advantage” option that has existed, in one form or another, for many years. About 7 million seniors or more than 90 percent of that group would have to pay more.

Supporters of voucher schemes have taken this to be vindication.

. . .

But this is a distortion of our findings, for several reasons. First, it confuses costs and payments. Medicare Advantage plans bid less than traditional Medicare, but they are paid more. The plans are officially supposed to use these higher payments to sweeten the pot—add additional benefits, reduce cost sharing, and the like—though some likely go for profit as well. This is why the Affordable Care Act reduced the amount that the government pays to managed care plans, over howls of protest from conservatives. Bidding less does no good for the program if the government then overpays relative to what was bid.

Second, they miss a key part of the reason why the Congressional Budget Office estimated that Ryan’s voucher proposal would cost seniors more. Medicare Advantage plans can only cost what they do because the traditional Medicare program is in place to help them. Specifically, Medicare sets very low payment rates to providers, and Medicare Advantage plans bargain up a bit from those rates. Get rid of the traditional Medicare program, or even reduce its enrollment substantially, and the estimated cost of Medicare Advantage premiums skyrockets.

No surprise there. The Republican ticket is just as bad at reading economic studies as they are at reading studies about global warming and evolution.