by Allan Joseph
Welcome to Week 8 of Project Millennial’s summer Journal Club. Previous posts can be found here. This week, we begin exploring some major reform ideas, beginning with the type of reforms generally referred to as “premium support,” “vouchers,” or “privatization.”
“Voucher.” That word gets thrown around a lot, but because it has uses in everything from retail shopping to education policy, it can be tough to figure out what exactly is going on when health policy proposals involve “vouchers” of some sort or another. So let’s start with this simple question: What, exactly, do we mean by a “voucher” proposal? Proponents of such proposals tend to dislike the word “voucher,” preferring terms like “premium support” instead — we’ll use both terms interchangeably, and specify in advance that they’re only used for convenience’s sake.
The idea is fairly simple: instead of the government directly serving as the insurer for a beneficiary, the government takes that money they would spend and gives each beneficiary a fixed amount that can be used towards purchasing a private insurance plan. The details vary (and we’ll get to that in a moment), but the idea is that this allows the government to help people afford health insurance while using the competitive forces of the private market to keep costs down. The idea is that customers should have to make a decision based on cost-effectiveness, because they have to pay part of the insurance premium. Insurers, then, have a reason to keep prices low to compete for customers. The whole thing is supposed to help reduce costs, especially to the federal government.
There’s already one major premium-support style program out there: Medicare Advantage (MA), which started in 1997. Basically, the program allows seniors eligible for “traditional” Medicare, in which the government serves as the insurance company, to opt instead for a private MA plan that they partially pay for using funding from Medicare. About 30% of Medicare patients are using MA plans, and they’ve been an intense area of research as a way to learn more about this form of insurance. Researchers have learned quite a bit, most notably that MA has added to Medicare’s costs, rather than decreasing them. However — and here’s where things get tricky — that has a lot to do with how the government determines its payment levels, and might not be perfectly translatable to other proposals.
Various bipartisan and Republican groups have proposed versions of premium support in the past years, and it’s gotten really confusing and complicated because the plans vary in a number of different ways. Let’s break it down:
- What’s being reformed: Most proposals have to do with Medicare alone, but some have gone farther to include Medicaid — and a few have gone even farther, proposing to convert the employer-sponsored insurance tax credit into a tax credit anyone can use for insurance.
- Who’s competing: Some plans get rid of “traditional” Medicare, while others keep it as an option people can use their vouchers to pay for. In every case, though, private insurers are competing for patients. In almost every proposal, the private insurers are regulated so that they are required to offer at least the same set of benefits as traditional Medicare, keeping the playing field “level,” so to speak.
- Voucher size: This is one of the trickiest parts of the proposal — how does the policy set the size of the voucher, or “premium support”? Is it equal to the cheapest bid in a geographic area, making beneficiaries pay extra for any company beyond that? Is it equal to whatever traditional Medicare would pay and refundable, so that beneficiaries could actually get refunded money if they chose a cheaper plan? In some other way?
- Voucher growth: This is probably the most controversial part of the proposal. Does the voucher change every year with a re-bidding process? Is the growth of the voucher capped? If the voucher isn’t allow to grow as quickly as insurance premiums, it’ll save the government lots of money, but it’ll also mean the beneficiaries are responsible for a growing share of the premium.
- Low-income protection: Are there provisions that cap how much low-income beneficiaries can pay out of pocket? Is the voucher bigger for poorer beneficiaries? Is there a cap on out-of-pocket expenses?
Now, the things we know about premium-support plans suggest that in part, private companies tend to save money by finding ways to cover the cheap patients and leaving the expensive patients to the government plans, a problem similar to the one Project Millennial’s Adrianna discussed over at the Incidental Economist recently. That could be problematic for sick patients. There are ways to adjust how much money insurance plans receive based on how healthy/cheap their patients are, but it’s important to note that the competitive forces at work are strong and make it really difficult to fully risk-adjust.
What does that mean for the bottom line, that is, healthcare costs? Good question. One estimate suggests a plan similar to those proposed could save quite a bit of money, though others suggest proper risk adjustment would wipe that out. Different levels of subsidy don’t seem to have a huge effect on costs; while there’s good reason to think competition could drive down costs, Medicare has done a better job controlling costs than private insurers for the last 40 years.
So there’s a whole lot going on in the “premium support” world. We’ve got research helping us understand it, but we don’t know everything, not by a long shot. When we look at specific proposals, almost everything depends on the nitty-gritty details. Some plans are rightfully accused of “cost-shifting,” because their vouchers grow more slowly than healthcare costs, making beneficiaries responsible for a bigger part of their costs over time, though that saves the government money. Other plans do a better job of making sure beneficiaries always have manageable expenses, but that also makes the program more expensive. Plans that use a competitive-bidding process based on local markets make sense, especially given the geographic variation in healthcare costs. Since part of the value of voucher systems is that they give consumers greater choice, it makes sense to include traditional Medicare in those models — not to mention the fact that to do so is probably more politically palatable to defenders of traditional Medicare.
Perhaps the most important feature of premium-support systems, however, is the risk-adjustment process. If policy wonks can get that process right, it’ll keep the playing field level and help ensure wide access to affordable coverage; if not, most plans would fall into imbalance quickly.
Premium support is a messy, complicated, world, but it’s fascinating — and it won’t be going away anytime soon. If you’re interested in learning more (and who isn’t?), the Incidental Economist has typically great coverage, including this fantastic series by Austin Frakt.
Next week: Prices, prices, prices.
Allan Joseph is a first year medical student at the Warren Alpert Medical School of Brown University, where he is pursuing an MD/MPP. You can follow him on Twitter @allanmjoseph.