How GOP’s Medicare reform would impact seniors

April 5, 2011

Pharmacy tech Maria Santoyo (C) works in Clinica Sierra Vista's Lamont Community Health center in Bakersfield, California October 20, 2009.  REUTERS/Phil McCartenRemember when Republicans were the protectors of Medicare?

Sure you do — it was just last year. The GOP fought the healthcare reform law by scaring seniors with warnings about death panels and slashed Medicare benefits. Both claims were fantasies, but they worked at the polls last fall, when Democrats suffered big defections among senior voters.

But that was 2010. Today, House Budget Committee Chairman Paul Ryan (R-Wisconsin) offered up a plan to do for Medicare what the 401(k) has done for pensions. Ryan proposes to privatize Medicare and turn it into a defined contribution plan — one with a lousy sponsor match.

Medicare’s current defined benefit would be replaced with a fixed contribution that seniors would use to buy private health insurance coverage on a regulated insurance exchange. But if their actual healthcare tab exceeds the payment value, they’d have to cover additional expense out of pocket. And eligibility for enrollment would rise from 65 to 67.

Ryan took pains announcing the plan today to note that the new plan would only affect people under age 55 today, and to assure seniors and boomers close to retirement that they’d continue to get Medicare under the current terms. But starting immediately, everyone in Medicare would face higher cost-sharing requirements and new limits on coverage provided by Medigap supplemental policies.

The centerpiece of Ryan’s plan is an income-adjusted subsidy that would be paid direct to whatever insurance company a senior selects to provide coverage. The subsidy would be increased annually by the rate of GDP plus one percentage point.

The initial payment is projected to be worth about $6,000 per year — far less than the cost of buying a private policy, according to the Congressional Budget Office (CBO):

Voucher recipients would probably have to purchase less extensive coverage or pay higher premiums than they would under current law, for two reasons. First, most of the savings for Medicare under the proposal stem from reducing the amounts that the federal government would pay for enrollees on a per capita basis, relative to the projections under current law. Second, future beneficiaries would probably face higher premiums in the private market for a package of benefits similar to that currently provided by Medicare.

That is, if they can buy insurance at all. Ryan’s plan says the exchange would be regulated, and insurance companies would be required to accept anyone on Medicare. What’s left unclear is whether insurers would be free to set premiums at whatever level they chose for less-healthy applicants.

Ryan’s plan also would index the payments to income, with affluent seniors receiving a smaller subsidy than everyone else. But high-income seniors have been paying higher Medicare premiums for doctor visits (Part B) since 2007, and the Affordable Care Act expands the surcharges to prescription drugs (Part D), and pulls in greater numbers of affluent seniors over the coming decade.

Let’s stipulate that healthcare spending is a big part of the long-term federal budget deficit. Spending for Medicare and Medicaid are projected to rise from four percent of GDP in 2007 to 12 percent in 2050, and 19 percent in 2082, according to the CBO. At that point, healthcare outlays would be equal to the total amount the government spends today.

But this is a healthcare spending problem, not a Medicare problem, per se.

The increases are driven mainly by higher per-beneficiary expenses, rather than a rise in the elderly population, according to the CBO. In other words, Medicare spending reflects the broader problem of exploding healthcare costs in the U.S. economy. Slashing what the government spends on Medicare simply tosses the problem over the fence to the private sector, which already spends more per procedure and consumes a greater share of each healthcare dollar on profit and overhead.

Medicare spends 98 cents of every dollar it takes in on delivery of healthcare –  a figure known in the industry (perversely enough) as the medical loss ratio.

Compare that to Medicare Advantage, the privatized HMO option already available to seniors. Medical loss ratios in two-thirds of privatized Medicare Advantage plans were lower than 85 percent for at least one year between 2005 and 2008, according to a 2009 Congressional report. And one plan studied for the report spent as little as 36 percent of its revenue on healthcare in 2007.

Ryan’s privatization plan bets on the private sector to fix the problem, but if we lose that bet, seniors will pay, at a time when they’re already facing huge retirement healthcare expenses. Fidelity Investments reported last week that a 65-year-old couple retiring this year can expect to spend $230,000 out-of-pocket lifetime for healthcare.

For affluent seniors, that will mean digging deeper. But for middle class and low-income seniors, Medicare privatization will be a disaster.

Comments

Leave it to the GOP to screw the very folks who mistakenly elected them to power in the House. Will people never learn?

Posted by thermopile | Report as abusive
 

thermopile, the GOP was elected by deep-pocket business owners. They will NOT disappoint that electorate.

The actual people casting the votes don’t matter.

Posted by TFF | Report as abusive
 

Not mentioned in this excellent article is the permanent establishment of the Bush era tax cuts that Ryan so “richly” desires. So (1) the affluent retirees will have even more money in which to “dig deeper” while (2) the government will be denied the revenue to retire the debt which will then make Medicare even more shaky than now. I’ve never understood the GOP “less-is-more” approach to domestic spending. Suppose that mentality was applied to defense? Would cutting our armed forces in half make us stronger? Instead of the Republicans squandering our tax dollars starting wars in places like Afghanistan which can never be won while the Democratic President shoots hundreds of cruise missiles in another desert country (at $1M per pop), we should be taking care of our own people.

Posted by gangof4 | Report as abusive
 

I agree completely, gangof4! My spouse and I are over 50 but not to the magic number 55 – what about us? We have paid into all these programs our entire working lives – and I’ve seen first-hand my elderly relatives get good medical care that they otherwise not have been able to afford.
Currently, we are both dealing with employers that do not offer benefits – including health insurance. When we were in our 40′s (and had kids at home soon to be off to college) our companies ditched their retirement pension plans in favor of 401K plans – like most companies. That has been a disaster for much of the US workforce. Out of ever-shrinking paychecks, we are told to find money for 401K contributions, higher health insurance premiums (if you are lucky enough to have that offered), and of course, to save privately for our retirements. All of this out of a salary that has remained essentially flat for the last 15 years or so! Where are we supposed to get the money? My mortgage payment hasn’t gone down, everything else has gone up (food,utilities,gas,vehicles,appliances, college tuition), and our earnings are flat. Our take home is less than almost 10 years ago. How are we supposed to save enough extra now to cover high insurance premiums once we retire and age and no doubt, need more medical care??

I watched my parents enjoy their retirement, secure in the knowledge that one day, I too would be able to retire. No more. I’m counting on working until the day I drop dead but I’ve been hoping that my health would just hold out until I was eligible for Medicare – but now it appears even that won’t help!

The US desperately needs single-payor health care for at least basic health services – then we can allow the insurance companies to sell additional upgrade policies. That way, old or young, we all would have basic health care provided and could purchase the additional services and policies we wanted or needed.

Posted by MidwestVoice | Report as abusive
 

The US desparately needs a single-payer health carrun pe; those naysayers that say they won’t no government run programs should look at social security; the whole program
is run with an expense of 2% of the gross for price.be job atits administration. No financial house would at that price.Similarly medicare can be run efficiently with some tweeking. For example there are many who could share the cost burden with a means testing for people who are wealthy.
This should be explored rather than the desperate search of victims, such as public employees’ pension and earnings to subsidize tax cuts to the wealthy.

Posted by loiters21 | Report as abusive
 

@MidwestVoice, you are guaranteed to be able to retire, people retire younger than they ever have right now. However, considering that you spend the most on health care in the last 3 months of your life, is that really a good economic decision for the taxpayer, not you to keep you alive for possibly an extra month even when you won’t be able to do the things you want or live a normal life? If you want to spend that money, or buy a health insurance plan , great but don’t expect the taxpayer to be responsible to keep you alive. The idea that health care costs would go up if privatization occurred is a fallacy. Currently senior citizens use and abuse health care largely because they don’t see the actual costs which allows doctors and hospitals to charge whatever they please. If seniors actually saw the costs maybe they would analyze the amount of utility they would get from going to the doctor for the flu or the sniffles. Privatization however would cause the costs to drop dramatically along with usage of health care. This is due to the fact that utility derived from healthcare would be lower than the price so to continue to profit, prices would have to drop. There are also several unnecessary barriers to entry with the healthcare field that continue to keep prices falsely inflated. Not to mention the impact that cutting medicare would have on tax rates and government income. Simply put, government getting out of healthcare would do seniors and everyone else a world of good.

Posted by dennycrane | Report as abusive
 

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