Ethics & Public Policy Center

More Mediscare

Published in The Weekly Standard on August 20, 2012


The oddly convenient academic study has long been a weapon in the Democratic party’s arsenal of election-season demagoguery. Do you need to say that conservative policies would sink the republic? Here’s a paper by scholars from a respected university, published in a respected journal, and released just as your campaign was turning to the issue in question, which happens to say just what you had in mind. It might all fall apart on closer inspection, but in the heat of a campaign it’s a perfect fit.

It was therefore not entirely surprising to see a paper by three Harvard researchers appear in the Journal of the American Medical Association on August 1 that sought to project the effects of a premium-support reform of Medicare based on the performance of the Medicare Advantage program.

Premium support is the idea championed by House Budget Committee chairman Paul Ryan and (Democratic) Senator Ron Wyden, among others, and included in the 2013 budget proposal passed by the Republican majority in the House this year. It aims to inject market-driven cost discipline into Medicare by allowing the program’s beneficiaries to use their entitlement dollars to choose among competing insurance options (including private insurers and a federally run fee-for-service plan), rather than having the federal government centrally manage the entire system. It is the very antithesis of Obamacare’s government-centric approach to health care financing.

Almost every congressional Republican has now voted for the sort of premium-support reform proposed by Ryan and Wyden, and Mitt Romney has endorsed it too. Since scaring seniors about changes to Medicare has been a central pillar of Democratic campaigns for decades, there is little doubt that the Obama campaign and congressional Democrats will direct a great deal of critical attention to premium support this fall.

At first glance, the Harvard JAMA study (which was funded by taxpayer dollars through the National Institutes of Health) would seem to provide just the veneer of academic respectability and authority that Democratic operatives crave for their attacks. The bottom line, the authors assert, is that if premium support had been operative in Medicare in 2009, the average beneficiary would have had to pay $64 more per month to stay in the traditional, government-administered Medicare fee-for-service program. No one should be shocked to see Democratic ads in the coming weeks and months attacking Romney and -Republican House and Senate candidates for wanting to impose “nearly $800″ more in annual premiums on seniors living on fixed incomes. The Center for American Progress (where one of the study’s authors, David Cutler, is a senior fellow) described the study in just those terms within hours of its publication. The 30-second spots with ominous background music can’t be far behind.

But this particular study turns out to be something new in the genre of convenient pseudo-scholarship: It doesn’t just distort the subject it takes up; it even distorts its own findings. When you examine the authors’ actual facts and figures, the study turns out to offer one of the strongest cases yet published in favor of premium support.

The Harvard researchers looked at the (limited and constricted) private-plan option already operating in Medicare today—a program called Medicare Advantage, created in 2003, which allows seniors to have their benefits provided through private insurers—and found that, on average, the Medicare Advantage plans cost far, far less than federally run fee-for-service Medicare.

This is the opposite of what Democrats were saying a year ago. Then, they were touting a Congressional Budget Office study that estimated the private plans offered to Medicare beneficiaries in the system Ryan envisions would cost much more than traditional fee-for-service Medicare, and thus require higher premiums—$6,400 higher in 2022—to be paid by beneficiaries. This new study shows otherwise, and proves the very point that champions of premium support have been making for years.

The $64-per-month estimate is based on the study’s finding that private plans can deliver the full Medicare package of benefits at a significantly lower cost—nearly -10 percent lower, on average—than the government-administered fee-for-service program. That’s precisely the win-win proposition Paul Ryan has been touting: Beneficiaries could get their comprehensive Medicare benefits for no additional premium if they selected the less expensive private plans, and taxpayers would spend 10 percent less on the subsidies for the Medicare program.

The authors try to spin this finding into a criticism of premium support by suggesting that the lower cost of private options would somehow increase premiums for many seniors. But they leave out some very pertinent facts.

For starters, the Wyden-Ryan plan would apply only to entrants into the program after 2023. No current senior, and no one under 55 today, would be affected by it. So there is no way for the reform to increase the premiums of any current beneficiaries.

Moreover, even the Harvard scholars’ own analysis shows that no senior would necessarily pay any more for Medicare coverage under the proposed reform. The point of premium support is to bring more efficiency into the program. If competition introduced new ways of providing and structuring coverage and care that significantly reduced costs, presumably the fee-for-service Medicare plan (which would remain an option under Ryan’s proposal) would learn from some of these and reduce its own costs too. If it didn’t, it would lose customers, and it would deserve to.

Finally, because the JAMA study is based on the existing Medicare Advantage program, which is dominated by a regulated payment system instead of true competition, it likely understates the potential savings. Under premium support, the competition (in terms of both price and quality) would be significantly more intense, which would drive costs down further. Thus, taxpayers and the program’s beneficiaries would almost certainly save even more than the significant amount the JAMA study unwittingly implies.

The authors of the study simply ignore all that. They also fail to note that all the insurance plans in the system proposed by the Ryan budget would have to provide at least the same comprehensive coverage available now, and that the Medicare system we now have grows more expensive every year at a thoroughly unsustainable pace that threatens to destroy the program and bankrupt the government.

Their actual reasoning, believe it or not, is that because a premium-support system would provide cheaper coverage than fee-for-service Medicare, it would increase costs for those seniors who opt for more expensive coverage. That’s not an argument against the idea—it is the argument for it.

It won’t be easy to build another round of Mediscare politics on this new study’s flimsy foundations, but we can surely expect President Obama and his party to do their best—treating savings as costs, and blithely advancing the opposite of the argument they made against the Ryan plan last year.

While it fails to support the argument its authors seem eager to make, this latest bit of convenient scholarship does prove one thing: that the case against reforming Medicare in order to save it (and to avert fiscal catastrophe) grows weaker every day.

James C. Capretta is a Fellow at the Ethics and Public Policy Center. Yuval Levin is the editor of National Affairs and Hertog Fellow at the Ethics and Public Policy Center.

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