Medicare Privatization Plans

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December 23, 2011
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December 24, 2011

Medicare Privatization Plans – by Stephen Lendman
The idea’s been around for years. More recently, bipartisan support’s been growing. Various plans have circulated.
A 2006 Congressional Budget Office (CBO) study assessed “Designing a Premium Support System (PSS) for Medicare.” It discussed pros, cons, other choices and implications in terms of costs and recipient benefits.
In 1995, Henry Aaron and Robert Reischauer first proposed PSS based on managed competition principles. Numerous variations followed with differing public support amounts.
All plans have six common features:
(1) Beneficiaries would choose from multiple approved health plans. Risk adjusted payments and marketing practices would be regulated, or so it’s claimed.
(2) Plans would offer a premium bid to cover core benefits.
(3) Federal payments would reflect these bids, subject to negotiations.
(4) Washington would provide beneficiaries a fixed premium subsidy tied to annual health plan bids.
(5) They’d vary depending on plans selected. Beneficiaries would pay differential costs.
(6) Traditional Medicare would compete on similar terms with private plans, including on price.
A March 1999, Bipartisan Commission on the Future of Medicare approved a premium support plan proposed by then-Commission chairman Senator John Breaux.
Though it failed to get a supermajority needed for official recommendation to Congress, it gained widespread support and became a prominent option in subsequent Medicare reform debates.
Proponents claim it relies on marketplace medicine to secure sustainability long-term. They falsely say Medicare, Medicaid and Social Security cause rising deficits and America’s national debt burden.
They also bogusly claim Medicare and Social Security are going broke. When properly administered, in fact, both programs are sustainable long-term with modest adjustments and by curtailing escalating healthcare costs responsibly.
If capital gains were taxed like income, huge amounts would be raised for traditional Medicare, prescription drugs under Part D, Medicaid, and other social programs. Instead, they’re on the chopping block for big cuts before privatization en route to eliminating them altogether.
In contrast, under a universal single-payer system, Medicare would be sustainable long-term. Eliminating private insurer middlemen alone achieves dramatic cost savings.
In its September 2007 report to Congress, the Congressional Research Service (CRS) compared 2004 US healthcare spending with other OECD (Organization for Economic Cooperation and Development) countries.
It found America spent $6,102 per person (today it’s over $8,000), well over double the $2,560 average for other OECD countries. Much of the difference comes from insurer administrative costs providing no care. Other OECD countries deliver better overall services at less than half what Americans spend.
Premium support and similar plans are steps toward destroying Medicare altogether, first by privatizing it for profit. Breaux’s plan set federal premium subsidies at 88% of the nationally weighted average.
Beneficiaries choosing plans costing less than 85% of the average would pay no premium. Those selecting higher benefit plans would cover extra charges.
Plans (allegedly) would have to provide benefits equal to current Medicare coverage, though they could offer additional benefits. They’d also be updated annually based on individual choice.
Savings are alleged to come from beneficiaries selecting lower cost options, price competition to attract enrollees, and letting recipients purchase Medigap coverage for added benefits.
Reality differs markedly from claims. Only universal coverage achieves major savings. Alternatives don’t. Independent studies confirm it.
Physicians for a National Health Program (PNHP) says America spends double the developed world’s healthcare average, yet performs poorly on key indicators like life expectancy, infant mortality, and overall well-being.
Currently, middlemen insurers, drug giants and large hospital chains game the system hugely for profits. Medicare for all can change that effectively and achieve major cost savings.
Overall, US healthcare could make a quantum improvement leap compared to today’s dysfunctional system. Instead, bipartisan complicity has worse in mind by cutting benefits, placing greater burdens on seniors and others, letting corporate predators game the system, and still leave millions uninsured, on their own and out of luck.
Other Destructive Medicare Plans
On December 16, the Brookings Institution published “Premium Support: A Primer,” claiming:
“The major cause of the federal budget crisis, which is still in its early stages, is the relentless growth of Medicare spending.”
Reasons given are baby boomer retirements and “persistent increase” in per person costs. “Unless something is one, Medicare….will grow from 3.6 percent of the nation’s GDP in 2010 to 10.4 percent by 2080.”
“Unchecked, growth in spending on Medicare and interest on the federal debt will bankrupt the country.”
Five Brookings participants were involved, including Henry Aaron, Alice Rivlin and former Republican Senator Pete Domenici.
He and Rivlin also co-chair a Bipartisan Policy Center (BPC). In 2010, its budget slashing program was called “Restoring America’s Future.” Implementation would destroy it for millions greatly harmed or entirely left out by their proposals.
They include:

  • indexing Social Security benefits to life expectancy to reduce them as longevity increases;

  • eliminating annual cost-of-living adjustments (COLAs); bogusly they claim inflation is overstated; in fact, it way exceeds official numbers, especially medical expenses placing enormous burdens on recipients, including retirees dependent on help;

  • instituting a one-year payroll tax holiday for workers and employers to save $650 billion; doing so, in fact, is hugely destructive by draining revenues needed for entitlements;

  • sharply cutting Medicare and Medicaid benefits by raising premiums, co-pays, and outpatient fees; also establishing privately owned health insurance exchanges to compete with traditional Medicare;

  • by 2018, cutting Medicaid by the amount it exceeds GDP growth so needy recipients get less en route to perhaps nothing;

  • shielding insurers and drug giants from malpractice suits by making it harder to file them; then capping non-economic and punitive damage awards by adjudicating claims in “specialized malpractice courts;” they’ll, of course, favor providers over consumers;

  • simplifying the tax code to two brackets (15 and 27%), favoring the rich; regressively cutting the top personal and corporate tax rate from 35% to 27%;

  • eliminating home mortgage and most other deductions and credits;

  • taxing employer provided health insurance;

  • instituting a 6.5% national sales tax, hitting ordinary people hardest; and

  • other regressive schemes, placing added burdens on households least able to cope.

Yet BPC outrageously claims their plan “provides a comprehensive, viable path to restore our economy and build a strong America for future generations and for those around the world who look to the United States for leadership and hope.”
Dominici is a former US senator. Rivlin once headed the Office of Management and Budget and the Congressional Budget Office. Yet neither understands economics and finance enough to propose workable, constructive policies.
Their proposal like others, including Brookings, enriches corporate predators and America’s super-rich at the expense of all others. In other words, it’s another giant wealth transfer scheme, heading the nation for third world status.
So is a new bipartisan congressional one Senator Ron Wyden (D. OR) and Representative Paul Ryan (R. WI) proposed to replace traditional Medicare with “premium support” plans.
At issue is eventual privatization to free Washington from future obligations. As explained above, beneficiaries would get fixed amounts to purchase private coverage through a federally regulated Medicare exchange.
Initially, traditional Medicare would remain optional. Longer-term it will transition to an entirely privately run system. Doing so will put vital care out of reach for millions of seniors when they most need it.
The plan closely follows Ryan’s April proposal to transition Medicare toward fixed-sum vouchers. He, other Republicans, and growing numbers of Democrats want government responsibility entirely ended. His new plan temporarily lets it compete with private plans with beneficiaries incurring greater costs.
A Final Comment
With November 2012 elections approaching, Obama and congressional Democrats may tread lightly around this sensitive issue. Post-election, however, traditional Medicare, Medicaid, Social Security and public pensions are on the chopping block for elimination.
Privatizations will precede it. Beneficiaries will be more than ever on their own. Eventually they’ll be entirely to free trillions more dollars for warmaking and corporate handouts. Obama’s fully on board. So are most congressional Democrats.
Safety net protections will disappear. Americans will be on their own entirely, sink or swim.
With one-third of US households impoverished or nearly so, imagine how irresponsible governance will gravely harm millions more.
Stephen Lendman lives in Chicago and can be reached at
Also visit his blog site at and listen to cutting-edge discussions with distinguished guests on the Progressive Radio News Hour on the Progressive Radio Network Thursdays at 10AM US Central time and Saturdays and Sundays at noon. All programs are archived for easy listening.

Stephen Lendman
Stephen Lendman
Stephen Lendman was born in 1934 in Boston, MA. In 1956, he received a BA from Harvard University. Two years of US Army service followed, then an MBA from the Wharton School at the University of Pennsylvania in 1960. After working seven years as a marketing research analyst, he joined the Lendman Group family business in 1967. He remained there until retiring at year end 1999. Writing on major world and national issues began in summer 2005. In early 2007, radio hosting followed. Lendman now hosts the Progressive Radio News Hour on the Progressive Radio Network three times weekly. Distinguished guests are featured. Listen live or archived. Major world and national issues are discussed. Lendman is a 2008 Project Censored winner and 2011 Mexican Journalists Club international journalism award recipient.