Jonathan Gruber gives qualified endorsement to premium support

Mixed Message From Obama Advisers on Medicare

By Meghan McCarthy
NationalJournal, September 10, 2012

President Obama has seized on Republican proposals to overhaul Medicare as a top campaign issue, saying that the GOP plan to add a private insurance option would end seniors’ guarantee of government health care. But behind the election-season politics, influential experts who have advised Obama on health care are open to a future for Medicare that includes competition among private insurance plans.

In e-mail exchanges with the staff of the White House-appointed  fiscal commission  that were obtained by National Journal, David Cutler and Jonathan Gruber, who have both advised Obama, gave qualified support to a Medicare voucher plan offered by Ryan and former Clinton budget director Alice Rivlin in talks to reduce the deficit.

Cutler and Gruber are both hot shots of the health economics world. Cutler is a professor at Harvard, Gruber at MIT. Both advised Obama on health care in the 2008 campaign, and both had major roles in helping develop Democrats’ 2010 health care law. When they offer counsel, the White House is listening.

Cutler now says he was only proposing an idea for Medicare if insurance exchanges are “shown to work well for the non-elderly population,” by getting people into good plans and lowering costs.

Gruber also said he approved of the Ryan-Rivlin plan in 2010 e-mails to fiscal-commission staff, as long as the insurance market reforms of the Democrats’ health care law are kept in place.

Gruber now says that economists don’t know enough yet to move the majority of Medicare enrollees into private-insurance plans.  As part of the effort to expand coverage to the uninsured, President Obama’s health care law would establish insurance exchanges for people younger than 65 to buy private health care. Gruber said that this is a better way of testing out new approaches, adding that it would be “stupid” to experiment first on the older and sicker Medicare population.

“We are getting better, but we are not quite there yet,” Gruber said in an interview. “But premium support is ultimately where we need to be.”

There are three key problems that still must be worked out, Gruber said. First, policymakers have to figure out how to keep insurance companies from cherry-picking healthy people and essentially forcing the sickest patients on to traditional Medicare, which would drain the program of money. Second, policymakers must find a way to make sure insurance companies design benefits so they are easy-to-understand for beneficiaries, and don’t trick seniors into buying more expensive plans that aren’t suitable for them. Third, they have to figure out just how quickly government checks for seniors to buy coverage could grow.

Still, Gruber said he could see Medicare becoming a premium-support-style plan within a five-year timetable, after the Affordable Care Act’s health insurance exchanges start enrolling an estimated 30 million people into insurance plans in 2014.


By Don McCanne, MD

So Obama advisor, MIT Professor Jonathan Gruber, says, "premium support is ultimately where we need to be." In other words, we should replace the traditional Medicare program with vouchers that would be used to purchase private plans. Let's look at the three problems which he says must first be addressed.

He says that policymakers must figure out how to keep insurance companies from insuring the healthy and sending the sick to the traditional government program. Actually that is only one behavior that private insurers engage in to enhance their success as private businesses. They are always going to do everything that they can to maximize revenues and minimize spending, as any reasonable business would do. The drive for profits for passive investors is not in itself inherently evil, except when it is applied to our health care system. Manipulating sick patients for the prime purpose of generating profits is immoral. Investor-owned insurance companies need to be removed from our health care system.

Gruber also says that we have to figure out "just how quickly government checks for seniors to buy coverage could grow" under premium support. This is a problem inherent with government vouchers that cover only a part of the costs. Instead of directing efforts to control total health care costs, government stewards tend to control just the government spending, passively shifting the costs of health care inflation onto the patients. The financial burden on individuals is already too great, and this would make it even worse.

More subtle, but perhaps even more important, Gruber says that the design of insurance products should be easy to understand so that seniors are not tricked into buying "more expensive plans that aren’t suitable for them." This statement represents one of the great fallacies of private health insurance markets, that somehow there is an insurance product that is just right for you wherein you will not have to pay for benefits that you'll never use.

There are two problems with this. The obvious one is that future health care needs cannot be predicted. Major acute disorders or the future onset of chronic disease are unknowns. Plans need to be comprehensive to insure against these potential losses, even if you hope that you won't ever need to use the coverage that is providing you security, though you probably will someday.

The other problem is that an ideal insurance system pools all risks and funds the risk pool equitably. It is less expensive because of the much greater administrative efficiency of a universal risk pool. It also eliminates financial barriers to appropriate health care. Maybe males don't want maternity benefits. Maybe females don't want coverage for prostate cancer. Maybe young adults don't want coverage for cataracts. Maybe the elderly don't want coverage for organ transplants. Maybe children don't want coverage for vaccines, even of their parents want them to have it.

The point is that when you start designing plans for different populations - "only the coverage you need" - you break up the universal risk pool and introduce many of the inequities and inefficiencies that characterize our current dysfunctional financing system. The administrative inefficiencies of buying "only what you need" increases costs over the entire system and redistributes those costs inequitably.

There is no substitute for establishing a single universal risk pool, funding the pool equitably based on ability to pay, and using the pool to fund health care based on medical need. And that, in a nutshell, is what a single payer national health program does.