Questions

Breaking down a false Obama Medicare claim.

One of President Obama's regular attacks on Paul Ryan's Medicare reform is that it would force seniors to pay $6,400 a year more for health care. But merely because he keeps repeating this doesn't mean it's in the same area code of accurate.

The claim is based on a now out-of-date Congressional Budget Office estimate of the gap between the cost of health care a decade from now, in 2022, and the size of the House budget's premium-support subsidy for a typical 65-year-old in 2022.

In other words, the $6,400 has no relevance for any senior today. None. But it also is unlikely to have any relevance for any senior ever because CBO concedes that its number is highly uncertain and "will depend on the evolution of the health care and health insurance systems over time, which is hard to predict." That's for sure.

Republican Vice Presidential candidate, U.S. Rep. Paul Ryan (R-WI) speaks during the Victory Rally in Florida at Town Square, Lake Sumter Landing on August 18, 2012 in The Villages, Florida.

The more fundamental problem is that the CBO analysis has nothing to do with the current Mitt Romney-Paul Ryan plan. Nada.

So how would Ryan 2.0 work in practice? Traditional Medicare and all private insurers in a region would make bids to cover seniors and compete for their business by offering the best value and prices. Then the government would give everyone a subsidy equal to the second-lowest bid.

If seniors chose that No. 2 option, whether it was Medicare or another plan, they'd break even and pay nothing extra out of pocket. If they picked the cheapest plan, they'd keep whatever was left over after the government subsidy—that is, they'd get a cash refund. If they instead picked the third-cheapest option, the fourth-cheapest, etc., they'd pay the difference above the government subsidy.

That structure ensures that seniors would have at least two choices (and likely far more) that they are guaranteed to do better than they do now. The amount of the premium-support subsidy would also be tied to underlying health-care costs, so it would not shift costs to beneficiaries, as Democrats also falsely claim. The very reasonable Romney-Ryan policy bet is that costs could nonetheless fall over time because seniors would have the incentive to switch to the most competitively priced Medicare plan.

May 8, 2012    Welcome to the Consumer Power Report.

In keeping with the Obama administration’s solutions when it comes to policy problems in other areas, its latest response to the challenge of health care costs is simple: Spend more money. The latest example comes in the form of a major bet by the White House on Oregon’s proposed Medicaid alterations, approved last week in a surprising decision. The cost to taxpayers? $1.9 billion:

It all, however, does hinge on a very big “if”: No other state has ever tried what Oregon is about to try. It is, however, an approach many health care payers are thinking about: It’s how Massachusetts wants to bring down health costs in private insurance, and the federal government’s plan [to] rein in Medicare spending. Oregon could, in many ways, serve as a test case for other cost control efforts.

Oregon wants to move its 600,000 Medicaid populations into “Coordinated Care Organizations.” These are health care systems that will accept a flat fee for all care delivered. While remaining within that budget, they will have to hit certain quality metrics, ideally creating financial incentives to deliver the most cost-effective care that can deliver good results.

If this idea sounds familiar, that’s because it shows up in the Affordable Care Act: Accountable Care Organizations will use a similar structure within the Medicare program (albeit with some differences in oversight and governance).

If the Coordinated Care Organizations, or CCOs, can hit the metrics and stay within the budget, they will net the savings. If care costs more than the flat fee, the health care system will be on the hook for additional spending.

But as always, this could be an example of a temporary fix--you might even call it a bailout--which turns into a long-term boondoggle, a fact Democratic Gov. John Kitzhaber acknowledged.

“The only thing that stands between this state and success is ourselves,” [Gov. Kitzhaber] said, standing in a third-floor meeting room of the nonprofit care group, Central City Concern.

The public event amounted to a victory lap after Kitzhaber returned from Washington D.C. with agreement for the federal funds. Earlier in the week he’d scrapped all meetings to fly east amid rumors that funding previously characterized as a done deal might suddenly disappear. The federal money amounts to a down payment on savings Oregon intends to deliver the federal government of $11 billion over the rest of the decade.

The five-year deal provides a large chunk of funds this year: $620 million. That nearly covers a $640 million budget hole that was built in to the state’s current budget by lawmakers using theoretical savings to comply with the constitutional requirement of passing a balanced budget.

The truth is that this approach to cost controls has never been proven to work, and it is likely to have unanticipated and negative consequences for the quality of care. But Oregon also could prove to be a test case for post-Obamacare reforms should the president’s law withstand the legal review at the Supreme Court. Should Oregon succeed, or even deliver a portion of the savings it has promised, it may very well be that future Americans will find themselves in these CCOs--powerless to operate within anything more than what is essentially a public utility disguised as a health care provider.