How GOP’s Medicare reform would impact seniors
Remember 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.