A Democrat suggests privatizing Medicare

The Democrat is Alice Rivlin, the former Clinton budget director who teamed up with Republican Pete Domenici to present a plan last week for tackling the budget deficit. Now, Rivlin is working with Rep. Paul Ryan (R., Wis.) to introduce a voucher system to privatize Medicare. From National Journal:

[Rivlin's plan is] very similar to Ryan’s “Roadmap for America’s Future” in that seniors would get lump-sum payments for the value of their Medicare benefits and use them to buy coverage in the private marketplace. The payments would climb slightly faster than consumer inflation, but they wouldn’t climb as fast as health care costs have been for decades. As a result, people now in their thirties would likely end up paying for a much bigger share of their health insurance when they retire than today’s seniors. On top of that, people now in their thirties would no longer even know how high their future out-of-pocket costs were likely to climb.

That’s why the idea has been such an anathema to Democrats, not to mention senior citizen groups like the AARP.

Though Rivlin’s approach wouldn’t slash Medicare spending as quickly as Ryan’s Roadmap, analysts say both plans would ultimately end Medicare as we know it.

(snip)

Rivlin has long backed the idea of a “premium support” program, which would keep traditional Medicare as the default for seniors but would charge them more out of pocket. Seniors who didn’t want to pay the higher premiums could take a voucher and enter a “Medicare Exchange,” similar to the health care exchanges being set up for uninsured people under the new health care law.

(snip)

Rivlin said her voucher plan is a blend of her premium support plan and Ryan’s Roadmap proposal. Rivlin cautioned that their voucher idea should be viewed more as a “concept” than a fully fleshed-out plan, and that they were still in the information-gathering stage. “It’s a first cut at whether we can agree on a set of principles,” Rivlin said. “We’re a long way from a bill.” … Rivlin, now with the Brookings Institution, said the pain would not be as acute as some might think, because seniors’ out-of-pocket costs would go down as managed care plans competed for their business. And no one could be turned away from the Medicare exchange.

The details would almost certainly change; setting the cutoff age at today’s 55-year-olds would probably be a tough political sell. Then again, perhaps today’s 55-year-olds understand that switching to a defined-contribution system for retirees’ health care may be the only way they receive anything close to the promised benefits for the rest of their lives. (Current Congressional Budget Office estimates peg the increase in Medicare spending between now and 2035, when today’s 55-year-olds will be 80, at more than 2 percent of GDP. By then, that should be around a half-trillion dollars.)

Demographic patterns make it clear that the intergenerational bargain is going to have to change sooner or later. As one of the 30-somethings referenced in the above article, I think paying less for my parents’ health care in retirement — while paying for more of my own, and therefore easing the burden on my own children — is a good trade. The devil will be in the details, but this is one of the conversations we must start having in earnest.

On a side note, how refreshing is it to hear a Beltway Democrat talk even a little bit about easing government out of an industry and letting the market work?