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A Bipartisan Way Forward on Medicare

Allowing private plans to compete with traditional Medicare will help lower costs and spur innovation.
By Ron Wyden and Paul Ryan

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Washington, Dec 14, 2011 | comments

Few issues draw more heated partisan rhetoric than the future of Medicare. Seniors are a reliable and powerful voting bloc, and both Republicans and Democrats are guilty of exploiting Medicare to frighten and entice voters. But turning discussions of Medicare's future into the third rail of American politics does nothing to guarantee that Medicare will continue to be a lifeline for America's seniors.

So, before the partisan attacks begin to escalate and the 2012 election ads start to air, we are outlining a plan for how Democrats and Republicans can work together to ensure that American retirees—now and forever—have quality, affordable health insurance.

Our plan would strengthen traditional Medicare by permanently maintaining it as a guaranteed and viable option for all of our nation's retirees. At the same time, our plan would expand choice for seniors by allowing the private sector to compete with Medicare in an effort to offer seniors better-quality and more affordable health-care choices.

Under our plan, Americans currently over the age of 55 would see no changes to the Medicare system. For future retirees, starting in 2022, our plan would introduce a "premium support" system that would empower Medicare beneficiaries to choose either a traditional Medicare plan or a Medicare-approved private plan. Unlike Medicare Advantage, these private plans would compete head-to-head with traditional, fee-for-service Medicare on a federally regulated Medicare exchange.

This reformed Medicare program would include the toughest consumer protections in American government.

Low-income seniors who qualify for both Medicare and Medicaid would continue to have Medicaid pay for their out-of-pocket expenses. Other lower-income seniors would receive fully funded savings accounts to help offset any increased out-of-pocket costs, while wealthier seniors would receive less help.

All health plans that participate in the Medicare exchange would be required to offer benefits that are at least as comprehensive as those covered by traditional Medicare, and participating plans would be forbidden to charge discriminatory premiums and would be required to cover everyone regardless of age, gender or health status.

The direct federal contribution to health plans that cover the sickest seniors would be higher than it would be for plans that cover healthier seniors, thus ensuring that more help goes to seniors with greater health-care needs.

Our plan wouldn't merely ensure that American retirees have more health-care options than they have today. By allowing private plans to compete directly with traditional Medicare, our plan would also spur a wave of innovation to lower health-care costs and provide higher-quality health care.

The reason is simple: In order to offer better benefits and lower costs than traditional Medicare, private plans will have to develop better delivery models and design better ways to care for patients with chronic illnesses. Imagine health plans tailored to help patients manage diabetes, prevent heart disease, or combat high blood pressure.

In the event that these efforts did not stem the rising tide of Medicare spending, there would be a cap on the program's rate of growth. But unlike other proposals, spending that exceeds the cap would neither be addressed through bureaucratic cuts nor passed on to seniors by default as higher premiums.

Instead, Congress would be required to do its job: Determine why the costs exceeded the cap and—when the evidence merits—reduce payments to providers, drug companies, or others who may be responsible for escalating costs.

By giving seniors the power to choose among competing plans, our plan would add a level of cost control, customization and quality to the health security of older Americans that today's Medicare is not in a position to achieve.

Our plan would also expand health-care options for working Americans by giving smaller businesses the opportunity to empower their employees to make their own health-care choices. Under this "free choice option," employees take the amount that their employer was contributing toward their employer-provided health coverage and use it to purchase their own health insurance instead. The cost to the employer—and the tax-free benefit to the worker—would remain the same.

Combined with expanded choices for Medicare beneficiaries, this would also make it possible for more and more Americans to transfer into Medicare without having to change doctors and insurance.

Taken together, these reforms would ensure that Medicare remains the guaranteed, affordable lifeline that its creators envisioned, both for older Americans and for young families paying into the system.

Yes, these are ambitious reforms, and while we are hopeful for the future, we are under no illusions that they will pass tomorrow. Nevertheless, we offer this plan as proof that Democrats and Republicans don't have to spend next year making Medicare reform more difficult. Instead, our parties can work together on bipartisan reforms to save and strengthen Medicare.

Mr. Wyden, a Democrat, is a U.S. senator from Oregon. Mr. Ryan, a Republican, is a U.S. representative from Wisconsin.

View online at The Wall Street Journal here.

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