The federal budget proposed by Rep. Paul Ryan, the Republican vice presidential nominee, extols the benefits of "promoting true choice" for Medicare beneficiaries. In truth, though, the Ryan plan would substantially reduce choice for many people on Medicare — by cutting them off from their current doctors.
Doctors see Medicare patients, despite the relatively low payments they receive for doing so, partly because Medicare represents such a large share of the health care market. If a substantial number of beneficiaries moved out of Medicare and into private plans, as Ryan proposes, doctors would have much less incentive to see Medicare patients. And the elderly who want to remain in traditional Medicare would risk being stranded.
The evidence suggests that, in time, this problem could well affect a large share of Medicare beneficiaries. To put that evidence in context, though, it helps to first review the history of the Ryan plan.
The proposal has changed since it was presented in 2011. In the original version, traditional Medicare was eventually to be replaced in its entirety by private plans. The Congressional Budget Office found that this shift would raise health care costs drastically because the private plans wouldn't be large enough to enjoy Medicare's leverage in negotiating prices with hospitals and other large providers. The savings that private plans could achieve because beneficiaries would share more of the costs, and therefore economize more, would be more than offset by that loss of leverage — and by the private plans' higher overhead and need to turn a profit.
In response, Ryan revised his proposal. Under Ryan 2.0, private plans would co-exist with traditional Medicare. (The CBO hasn't fully evaluated the revised plan yet.) Many supporters argue that the new plan can't be as big a problem as the old one, since beneficiaries could always choose to remain in traditional Medicare. In health care, however, choice isn't always innocuous — and can sometimes be harmful. The reduced choice of doctors for those who remain in traditional Medicare is one of those adverse consequences of moving beneficiaries out of the program.
Currently, Medicare beneficiaries almost universally enjoy excellent access to doctors. And the great majority of beneficiaries never have to wait long for a routine appointment, the Medicare Payment Advisory Commission has found. Roughly 90 percent of doctors accept new Medicare patients.
Doctors provide this access even though they are reimbursed by Medicare at rates that are only about 80 percent of commercial rates — partly because Medicare is such a large share of the market. Which brings us to the concern about the Ryan plan.
How important is Medicare's market share in influencing physician participation? The evidence is limited, but the best study to date suggests it is significant. In the 1990s, Peter Damiano, Elizabeth Momany, Jean Willard and Gerald Jogerst, all associated with the University of Iowa, surveyed Iowa physicians and examined variation among counties. They found that for each percentage-point increase in the share of Medicare beneficiaries in a county's population, doctors were 16 percent more likely to accept patients on Medicare.
About 10 percent of the U.S. population is now enrolled in traditional Medicare, and an additional 5 percent has private Medicare plans. Let's assume, for the sake of argument, that the Ryan plan would cause another 5 percent of the population to shift, and to be conservative let's cut in half the Damiano estimate of the impact from that reduction in Medicare's market share. Then the chance that a doctor is willing to see traditional Medicare patients would be expected to decline by a whopping 40 percent. The share of doctors accepting Medicare would fall from about 90 percent to 54 percent.
Supporters of the Ryan approach might argue that fewer people would shift into the private plans, so the impact would not be that great. But then, what is the point of Ryan's Medicare reform?
Another defense might be that the government could simply raise doctor-reimbursement rates to encourage providers to continue treating a shrinking population of traditional Medicare patients. However, Ryan has not included the extra cost in his budget.
So, which is it, Mr. Ryan? Will your plan cause Medicare beneficiaries to lose access to their doctors, or are your budget numbers too rosy because you haven't counted the extra payments needed to keep doctors in the program?
Peter Orszag is vice chairman of corporate and investment banking at Citigroup and a former director of the Office of Management and Budget in the Obama administration.
© 2012 Bloomberg News