In a surprise move, Paul Ryan found a Democratic partner to propose a new Medicare plan that does not fully privatize it, but instead keeps fee-for-service Medicare as an option alongside a premium support plan. This is the same proposal that the front-running Republican Presidential candidates have made.

Here’s the plan in a nutshell, from Ryan and Sen. Ron Wyden’s op-ed:

Our plan would strengthen traditional Medicare by permanently maintaining it as a guaranteed and viable option for all of our nation’s retirees. At the same time, our plan would expand choice for seniors by allowing the private sector to compete with Medicare in an effort to offer seniors better-quality and more affordable health-care choices.

Under our plan, Americans currently over the age of 55 would see no changes to the Medicare system. For future retirees, starting in 2022, our plan would introduce a “premium support” system that would empower Medicare beneficiaries to choose either a traditional Medicare plan or a Medicare-approved private plan. Unlike Medicare Advantage, these private plans would compete head-to-head with traditional, fee-for-service Medicare on a federally regulated Medicare exchange.

This reformed Medicare program would include the toughest consumer protections in American government.

Low-income seniors who qualify for both Medicare and Medicaid would continue to have Medicaid pay for their out-of-pocket expenses. Other lower-income seniors would receive fully funded savings accounts to help offset any increased out-of-pocket costs, while wealthier seniors would receive less help.

All health plans that participate in the Medicare exchange would be required to offer benefits that are at least as comprehensive as those covered by traditional Medicare, and participating plans would be forbidden to charge discriminatory premiums and would be required to cover everyone regardless of age, gender or health status.

So you have the Ryan plan, competing with traditional Medicare.

First of all, there’s nothing novel about this plan. This is what Newt Gingrich proposed in the mid-1990s, when he thought that Medicare would “wither on the vine” in the face of competition with private companies. Actually what we’ve seen is that Medicare Advantage, which despite the claim above is basically in competition with traditional Medicare, costs a lot more and doesn’t provide better coverage. And Medicare hasn’t withered at all. People love the single-payer plan. My expectation would be that if this took effect, it would depend on who ran Congress and the White House as to which program, traditional Medicare or premium support, would have a leg up, at least at the outset. But Medicare simply does a better job of providing care with low cost. Any savings from this plan for the government goes onto the consumer, and insurance companies pocket the difference.

I’ve heard a few people say that this is the exchanges with a public option, and that’s not all wrong. But there’s a difference between imposing exchanges with a public option on the individual market and imposing it on a working single payer system. The former would be a step forward; the latter is a step backward. This fractures the market for seniors, and any smaller pool would raise overall costs. This degrades the market, by replacing a more efficient program with this Rube Goldberg approach. Ryan and Wyden bend over backwards to claim that the premium support would be robust enough, and that nobody would be discriminated against, and all the rest. If that’s the case, why make the change at all? Ryan and Wyden would say that competition is the reason: that putting private insurance companies in competition with Medicare would lower the cost. The experience of Medicare Advantage shows just the opposite; the costs of Medicare Advantage are rising. Similarly, in the individual market, where companies allegedly compete with one another right now, costs rise much higher than in Medicare. Health care just isn’t the same kind of market from the laissez-faire capitalism textbooks. The invisible hand doesn’t deliver the same results when someone is sick and needs a doctor right away.

And there’s this hand-wave, with a cap on Medicare spending but somehow a pledge that the cap won’t effect patients:

In the event that these efforts did not stem the rising tide of Medicare spending, there would be a cap on the program’s rate of growth. But unlike other proposals, spending that exceeds the cap would neither be addressed through bureaucratic cuts nor passed on to seniors by default as higher premiums.

Um, how? How exactly would you cap Medicare spending and not have it impact anyone? I don’t know what “bureaucratic cuts” could cover, that’s pretty vague, but capping spending would not help but have a direct impact on seniors.

Why is Wyden involved in this? First of all, he has a history of partnering with Republicans on health care issues; remember Wyden-Bennett? Second, the plan includes his Free Choice Act, the option whereby employees can take the money their employer used to purchase health insurance and buy their own coverage tax-free. This is a form of Wyden-Bennett that could open the exchanges to many more workers. It doesn’t put a public option there, but it’s probably a small positive.

From a political standpoint, I don’t know why you would bail out Paul Ryan, although the early coverage makes it look like he caved by keeping regular Medicare alive. Democrats will probably run the same ads on the Ryan plan to end Medicare. But they will have lost their bite. Republicans will say that Ryan has a new plan, and even Democrats agree with it. They may not even endorse the plan. But it gives them an out.

UPDATE: A bit more here, though I’m sure Jon Walker will add on. The budget cap is at GDP +1%. That’s much better than CPI + 1% from the original Ryan plan. But it’s still above where Medicare is at now. There are ways to reduce the cost of Medicare, and I can think of a few of them that wouldn’t impact patients. Allowing negotiation for prescription drugs is one, and new payment delivery systems are another. So is opening up the medical profession to free trade, allowing qualified, lower-cost providers abroad to provide service. I doubt that Ryan has any of these in mind.

UPDATE: I think Igor Volsky has this mostly right.