By Fred Barnes
Over the past year, an entitlement revolution has taken place on Capitol Hill. It has gotten relatively little attention from the media. Yet its implications for the budget deficit and the health care of senior citizens are enormous.
The revolution involves Medicare, the health-care program for the elderly and the single biggest cause of America's looming debt crisis. Reform of Medicare would be achieved by a policy known as "premium support." It would bring consumer choice and spending restraint to the beleaguered program.
You may not have heard of premium support. But thanks to the efforts of Paul Ryan, the Republican chairman of the House Budget Committee, it is now the leading alternative to current, fee-for-service Medicare. Indeed, it is the only credible alternative.
How would premium support work? Beginning in 2022, it would create a marketplace in which seniors have a fixed amount of money to buy health insurance. The amount of "support" would match the price of the insurance "premium." The poor would get additional support to offset out-of-pocket expenses. The better-off would get less. Payments would be "risk-adjusted" so the sick would be assured of full coverage.
Yes, it's a bit complicated. Insurers would compete for the business of seniors. There would be three options. One would be coverage at the support level. Another would offer less coverage at a lower price, with the difference rebated to the beneficiary. The third would provide broader coverage at a higher price, requiring the beneficiary to pay the amount above the support level.
That's the health-care part of premium support. The cost-saving part is simpler. Medicare in its current form is open-ended, its expenditures uncontrolled and unsustainable. With premium support, the cost of Medicare would be capped. Its payment would rise with the rate of inflation or GDP growth, or slightly above.
The salience of premium support doesn't depend on who wins the White House in November. It is bound to be a major part of budget negotiations. Without it, serious deficit reduction would be almost impossible. With it, a debt crisis like Europe faces today is avoidable.
True, Mr. Obama's health-care law has created an Independent Payment Advisory Board with the task of limiting Medicare spending, now rising at 6% a year, to the economic growth rate plus a half percentage point. Not only does the board lack the tools to achieve this, but even if it did, the cuts would drive away doctors by the thousands and force hospitals to close due to lack of funds.
How Mr. Ryan, a protégé of the late Republican reformer Jack Kemp, yanked premium support from obscurity is an amazing story. Discussed in policy circles for years, it was recommended by a bipartisan presidential commission in 1999. President Clinton ignored the advice, and President George W. Bush never embraced it.
It didn't get traction in Washington until last year, when Mr. Ryan drafted a budget for 2012 and included premium support. The Ryan budget passed the House before dying in the Democratic Senate, which refused to pass any budget.
But House passage alone was a milestone. When Mr. Ryan first proposed premium support in 2008, 14 House Republicans signed on as co-sponsors. But when his budget cleared the House in 2011--with Medicare reform its most controversial provision--only four of the 241 Republicans voted against it. Of the 87 GOP freshmen, only one voted no. In the Senate, all but five of the 47 Republicans declined to back Mr. Ryan's plan.
The story might have ended there. It's one thing for the congressional party to back premium support, another for the presidential wing to do so. Mr. Ryan personally talked to Rick Santorum, Mitt Romney and Newt Gingrich. He proved to be persuasive. (Mr. Gingrich retracted his charge that Mr. Ryan's plan was "right-wing social engineering.") Ron Paul hasn't taken a position on the policy.
The result? Premium support is now Republican orthodoxy. But absent a GOP landslide this fall, that's not sufficient to win congressional approval. Besides, entitlements are best enacted on a bipartisan basis. Otherwise, they may wind up like ObamaCare--unpopular, under legal challenge, and the target of endless partisan attacks.
Mr. Ryan understood the need for Democratic allies. So when Democratic Sen. Ron Wyden of Oregon approached him last fall, Mr. Ryan readily agreed to compromise. Mr. Wyden wanted traditional Medicare to be an option under premium support, a provision urged by Democratic budget expert Alice Rivlin. He got it, though payments would be capped, not open-ended.
Democrats had pounced when Mr. Ryan put Medicare reform in the House budget. They insisted Republicans would end "Medicare as we know it." The charge lost some of its sting after GOP candidates brushed the accusation aside and won special House elections last year in Nevada and New York. Democrats chastised Mr. Wyden, if merely to discourage other Democrats from joining Mr. Ryan. It worked--in the short run.
The embargo on premium support won't last past the November election. Mr. Ryan says he's talked to a "handful" of Democrats in the House and Senate who favor Medicare reform. "They're afraid of getting treated like Ron Wyden," Mr. Ryan says. "They're not willing to talk [publicly] until after the election."
John Gorman, a consultant who worked on health issues in the Clinton administration, says the "only thing that's going to save this program is structural reform." The Wyden-Ryan bill is "a reasonable compromise," he says, and "there's a lot of precedent for it." One is the Medicare prescription drug program, passed in 2003, under which commercial providers compete for the business of seniors. As a result, its cost to the taxpayers is 41% less than projected. Another is Medicare Advantage, selected by 20% of seniors. "The beneficiaries are happy," Mr. Gorman says.
Advocates of a single-payer health-care system are not happy. They like Medicare the way it is, a defined-benefit plan with no lid on costs and the government in full control. "Their vision of health care is the way Medicare is run today," says health-finance expert James Capretta. It points the way to a single-payer system.
Premium support doesn't. It is a defined-contribution plan, forcing insurers to be more efficient while making their product as attractive as possible. "It's the only way of saving Medicare without subjecting it to harsh rationing," Mr. Ryan says.
Mr. Ryan says the arrival of the large freshman class of House Republicans accelerated the drive for Medicare reform. But it's Mr. Ryan, 42, who deserves the bulk of the credit. He's the top Republican thinker on domestic issues. And he has a keen political sense. He's been on a roll since he took apart ObamaCare in front of Mr. Obama at the White House health-care summit in 2010.
Because of his tireless proselytizing, premium support has emerged as the most sensible way to reform Medicare.