I have seen lively debate over the macro-scale incoherence of the Ryan voucher plan for eliminating Medicare. The cost of the vouchers, everyone points out, would quickly fall behind the cost of care, leading to a greater and greater shift to insured patients, or to greater and greater denial of care for financial reasons.
But I haven't seen much effort to go into the details of how a voucher-supported private senior health care finance system (a VSPSHCFS...quite a mouthful) would actually operate.
So I started thinking...and need better minds to fill in more!
I'm pretty sure the so-called Ryan plan is fiscally incoherent at the macro scale, but I've found it a bit difficult to get any detail on how it would work in detail. And anyone involved even very peripherally with health care finance knows that the details are hugely important. Unfortunately, the media and blogosphere conversation has concentrated on the macro-discussion of overall costs, vouchers, and overhead. That whole discussion is important, of course, but it's actually secondary until we know more about what Ryan's proposing.
His comparisons with Part D, if not entirely disingenuous, suggest he's thinking of something like it. I have some experience with helping my mom (fortunately relatively healthy) pick one of those. The other model out there that I have a little experience with are the semi-standardized Medigap policies that are available.
From what I have heard, implementing something like the Ryan plan would therefore have to (?) include some basic elements. I can think of the following:
1. Dollar-valued annual vouchers to all people reaching the target age (65?). The vouchers' value would increase at from year to year at a rate determined by the Federal government
2. Mandatory issue: (Turns out that Ryan is a socialist, too!) For any voucher system to work at all, companies will have to design plans they are willing to offer through a standard process for the amount of a voucher plus some extra cost. They will have to offer various plans without knowing anything about the insured. (If they know and can reject insureds, they will cherrypick, quickly destroying the entire system, right? Some people will be uninsurable from the day they turn 65...and that won't fly). There could also be some kind of semi-mandatory issue, where companies would be required to take all who apply at age 65, but could pick and choose among those desiring to change plans).
3. (tangentially): No purchase mandate (That would be socialism!) because none is needed: who would leave money lying around, after all? And the vouchers are good for nothing else, right? (Could a secondary market in vouchers emerge? Could healthy seniors buy a barebones package and apply the remainder of their voucher to their sicker spouse's insurance? )
4. Some kind of standard packages (?). Medigap suggests that some standardization of coverage is required to make this kind of a market function at all. If there's no standardization, the decision costs to insureds rise quickly toward infinity: how can they possibly tell which of thousands of possible plans suits them best? (Then again: Medigap is voluntary, and not everyone does buy it, so the insurance companies had an incentive to standardize their products enough to make them comprehensible and thus buyable). Also, a lack of standardization would greatly increase the incentive for deceptive plan structures for the insurers (make it look sweet now, hide the bad part in the fine print--compare telephone or credit card contracts for reference).
5. Some kind of durability (?): are seniors locked into the plan they choose when they turn 65? Can they change plans every year without hindrance? Or is there something in between, where changes are possible, but perhaps not at will?
Are there other inherent features I haven't thought of? (IANAHCFE).
No matter what else, the details of #2 are absolutely crucial: mandatory issue, but of WHAT? I've imagined some possibilities, and tried to think of their consequences, but I'm sure this is just a naive stab in the dark, really:
2a. A year's coverage plan (deductible, package of covered items, exclusions) for a given cost. All insurance could be year by year. (No durability, full mandatory issue: if an insurer wants to offer a package, any senior can take it any year). This would lead to people choosing deductible/cost/coverage structures that changed as their health and finances changed. Chronically and expensively sick people might accept a large initial deductible and higher costs in exchange for high coverage limits, for example, whereas the relatively healthy might want lots of preventative coverage included for free, but a cap on total costs or a larger copay, with a lower net cost to the insured. I can't imagine insurance companies would like this: they want to game their customers, not to be gamed by them.
2b. (If all plans are not open every year; let's say the only free choice year is at 65): A renewable coverage plan (deductible, package of covered items, exclusions) for a given cost for that year that would be guaranteed re-issuable as long as maintained (This, I think, is the Medigap model). This would offer insureds stability, but also implies that insurers can reject some insureds seeking to transfer in. And it doesn't address the cost issue either for people in a particular plan, or for transfers. What if the cost (beyond the voucher) of a particular plan rises so quickly that the insured can't make the premium, even with a voucher? Presumably, they could choose a plan with less coverage. But that implies that at least some transfers MUST be possible. And what if the only plan a person with a voucher can transfer into (even with less coverage than the plan chosen at 65), given her health record, is so expensive she can't afford it, or offers so little coverage it's not worth paying for? If the government then subsidizes either the premium or the health care costs, we're putting the insurance companies way way into moral hazard territory. "Sure, we'll take your (high) premium on top of the voucher, but if you get sick, we'll ask Uncle Sam to pay." Insurance companies might accept some portability/transferability under such circumstances, but then we're back to all the problems of the private health insurance market, with the Feds as the high-risk pool. Not a good place to be, and whaddya bet the insurance companies find lots of ways to dump people into that high risk pool, once their premium stream has been locked in?!
2c. A renewable coverage plan (deductible, package of covered items, exclusions) that would be guaranteed re-issuable as long as maintained and would have some restriction on future years' cost increases beyond the voucher (presumably tied health care cost growth index). This would balance insured and insurer interests, perhaps, but would create huge incentives to insurers to whittle, deny, and otherwise chisel every single insured, since there is no prospect of either dumping the sick ones, or of raising their premiums. Do the Republicans really want to drag Medicare back to the present of individual insurance buyers, that way? Anyone who has ever had to deal with a modern for-profit health insurance company, I'm convinced, hates the company, after all. (I have had one year of such coverage since I started working 26 years ago, along with Kaiser, and the level of chiseling and bad faith by the private company, CIGNA, was awesome). The backlash risk is monumental.
And on top of the durability/renewability/cost issues, there's the 'contents' of the plans issue. Who would regulate these? If the Federal government doesn't then it will be the Wild West, right? Will the Republicans say states should regulate, but insureds can buy from any state…the old race-to-the-bottom model? I have seen high variability of coverage in Part D, right now: plans are allowed to, and constantly do add, subtract, and change reimbursement parameters for many drugs. Seniors can hardly be expected to keep up. Allowing 'free market' changes to plans with a cap on premium increases would quickly mean that plans covered less and less (at least, nothing likely or expensive), since most seniors would be trapped in the plan. Again, it's hard to see seniors being very happy about such a state of affairs, so the risk of backlash is rather intense.
I guess there's a reason that this 'third rail' is starting to make the Social Security third rail seem positively tame!