Could a voucher system replace Medicare?
If Democrats can stop defending Medicare, and Republicans allow the 2010 health law to take effect, a voucher system might work.
Could Congress replace the current Medicare system with a voucher program, as former Clinton budget director Alice Rivlin and House Budget Committee chairman Paul Ryan (R-WI) among others have suggested? It could if Republicans allow the 2010 health law to take effect and Democrats can bring themselves to stop defending a deeply flawed Medicare program.Skip to next paragraph
Howard Gleckman is a resident fellow at The Urban-Brookings Tax Policy Center, the author of Caring for Our Parents, and former senior correspondent in the Washington bureau of Business Week. (http://taxvox.taxpolicycenter.org)
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In such a voucher system (sometimes called premium support), traditional Medicare would disappear. Instead, government would give seniors a subsidy they could use to buy private insurance. But such a plan could never succeed without a robust individual insurance market.
Get past all the nasty partisan rhetoric and it is pretty clear: The 2010 law—the Affordable Care Act—creates exactly the foundation for that market.
For vouchers to work, insurance companies would have to sell coverage at an affordable price to all, regardless of health status. Seniors would need a way to shop for insurance. To keep premiums reasonably priced, consumers would have to be required, or at least very strongly nudged, to buy coverage before they got sick. Finally, since premiums would still be expensive for older buyers, the government would have to provide seniors with a significant subsidy to make the product affordable.
As it happens, the first three elements are exactly the model of the ACA. The law includes insurance exchanges, a requirement that private insurers make coverage available to everyone regardless of health status, and the obligation that everyone have at least basic coverage. It even includes subsidies for some low-income buyers. Additional premium support for seniors would be the final piece of the puzzle.
Keep in mind that when Medicare was enacted in 1965, older Americans could not purchase affordable private insurance. There was no individual market for them and few employers offered retiree coverage. Medicare made insurance available to seniors, although through a system encrusted by disincentives to quality care.
Five decades later the market failures of pre-1965 remain. Eighty percent of those 65 and older suffer from at least one chronic disease and half suffer from two or more. Yet, there is still no functioning individual insurance market for people with pre-existing health problems. The Commonwealth Fund reports that nearly half of those with health problems reported they were either denied insurance, charged rates they could not afford, or had their illness excluded from coverage. And while some employers do sponsor retiree insurance, it is usually only for those under 65, fast disappearing, and increasingly expensive. As a result, dumping nearly 50 million Medicare recipients on to a non-existent private insurance market would be both treacherous for seniors and a political non-starter.