Are you confused about the future of Medicare?
Everyone knows that Medicare reform is critical for bringing the federal government's long-term structural debt and deficit into better balance. Yet during the months leading up to the March 2010 signing by President Obama of his signature health care reform bill—the Patient Protection and Affordable Care Act—Republicans assailed it for planned cutbacks in projected Medicare spending that totaled almost $500 billion. Former Republican National Committee Chairman Michael Steele called for a senior bills of rights in the Washington Post on Aug. 24, 2009, that would "protect Medicare and not cut it in the name of 'health-insurance reform.'" Republicans have now lined up behind Representative Paul Ryan's (R-Wis.) proposal that dramatically slashes Medicare spending even more for anyone under age 55.
Say what? No wonder many people are confused. To cut through the claims and counterclaims, examine a statement Ryan has made repeatedly. In his Pathway to Prosperity booklet, Ryan describes his plan for Medicare this way: "Starting in 2022, new Medicare beneficiaries will be enrolled in the same kind of health-care program that members of Congress enjoy." Sounds good, right? The thing is, there is but a surface resemblance. The differences are crucial and illustrate why his plan isn't reform.
In essence, under the Ryan plan Medicare recipients in 2022 would get a "premium subsidy" paid directly to a health plan of their choosing. The value of the subsidy would increase at the rate of the consumer price index; the Congressional Budget Office estimates the subsidy would be worth $8,000 initially. The yields on Treasury Inflation Protected Securities signal that investors expect consumer price inflation to average a bit over 2 percent over the next 30 years. Medicare per capita spending rose at an average annual rate of 6.7 percent between 1985 and 2009. The "cost" savings on Medicare come largely from older folks dipping deeper into their pockets and the government picking up less of the Medicare tab.
The federal government pays two-thirds of the health-care premium tab for members of Congress. (The current salary in Congress is $174,000 vs. a median income of $21,000 for Medicare beneficiaries.) The Kaiser Family Foundation estimates that the Medicare program would pay 58 percent of the tab for the typical 65-year-old in 2022, while under the Ryan plan the percentage shrinks to 39 percent. Even more striking, the out-of-pocket cost under Ryan's proposal for the typical 65-year-old would be more than twice as large as with traditional Medicare—$12,500 vs. $5,630. The reason for the large gap is that the cost of providing benefits is greater with a private insurance system than under traditional Medicare. Private plans have higher administrative costs and historically pay higher fees to providers than traditional Medicare.
These numbers alone say the cost-shifting embedded in the Ryan plan is unrealistic and the comparison to the health-care plan of Congress misleading.
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