The new Wyden-Ryan proposal would make major structural changes in Medicare and limit the government’s open-ended financial commitment to the program.
Under the proposal, known as premium support, Medicare would subsidize premiums charged by private insurers that care for beneficiaries under contract with the government.
Congress would establish an insurance exchange for Medicare beneficiaries. Private plans would compete with the traditional Medicare program and would have to provide at least the same benefits. The federal contribution in each region would be based on the cost of the second-cheapest option, whether that was a private plan or traditional Medicare.
In addition, the growth of Medicare would be capped; in general, spending would not be allowed to increase more than the growth of the economy, plus 1 percentage point — a much slower rate of increase than Medicare has historically experienced.
This is a pretty big deal as a matter of policy and a matter of politics. Democrats had hoped to spend the 2012 election demagoguing Republicans on Medicare. Now, Wyden has given Republicans some bipartisan cover. Mitt Romney proposed a similar plan in November. Chuck Schumer and the folks at the DNC are probably kicking themselves right now.
Yuval Levin writes that Ryan-Wyden is "very much along the lines of the one House Republicans proposed in their budget this spring." The two main differences between the Wyden-Ryan plan and the GOP budget are (1) that growth of the Medicare subsidies could potentially* be higher and (2) that future beneficiaries (those entering Medicare in 2022 or later) may use their subsidies to buy into traditional Medicare. Ryan has always said that growth rates and the option to buy into the traditional Medicare plan were reasonable, negotiable points. The important thing is that Ryan-Wyden still transforms Medicare from an unsustainable open-ended single-payer program into a subsidized market-based program.
*Yuval Levins provides more detail on the "competitive bidding" process that would determine the growth of Medicare:
under the Ryan-Wyden proposal, as I understand it, the value of the premium-support payment would be set by competitive bidding. The government would define the minimum insurance benefit it would seek to provide to all covered seniors, based on the level of coverage Medicare now provides, and then there would be a process each year in which the competing insurers would offer bids proposing to provide that (or a greater) benefit at the lowest cost they could. The level of the premium-support payment would be set at the level of the second-lowest of the bids. Seniors would then be able to apply that amount toward the purchase of any of the plans on offer. Thus, there would be at least one option that would cost less than the premium-support benefit, and seniors choosing that option would get the difference back; there would be at least one plan that cost the same as the benefit, so that seniors could obtain it with only the same out-of-pocket costs they have today; and there would be other plans that cost more (perhaps because they offered more, or because they failed to find ways to drive greater efficiency in their networks of doctors and hospitals) and for which seniors would pay an additional premium if they chose. Poorer and sicker seniors would get additional help, while the wealthiest seniors would get less. (I laid out how such an approach would work and why I think it’s a very appealing idea in the Weekly Standard a few months ago, here). To help CBO score such a proposal, and to make sure the government’s maximum costs are reasonably predictable, the competitive bidding process would also be backed up by a maximum growth index (of nominal GDP plus 1 percent per year)—an idea suggested to the supercommittee this fall by Democratic budget guru Alice Rivlin and former Republican senator Pete Domenici as a revision of their original premium-support proposal from earlier this year, and apparently proposed by the Republicans on the supercommittee to their Democratic counterparts, who rejected it....In a sense, competitive bidding is an even more market-based reform than the original Ryan proposal; it’s a way for those of us who believe that markets can help control health-care costs to show confidence in our expectations of competition. If market forces do drive costs down, as conservative health-care experts expect, the reform would save an enormous amount of money, leaving both our budget and our health-care system in vastly better shape. If market forces do not drive costs down sufficiently, then we would have to find another way to address our entitlement costs. We would be back where we started, which is where most Democrats want to end up anyway.