How the Ryan plan saves Medicare for those under 55

| August 15 2012
Christopher Cook

Look at this chart and note two things.

First, the general fact that entitlements are going to devour everything in their path until, by 2049, there’s nothing left.

Second, Medicare is the worst offender of the lot, by far

 

 

If we do nothing, entitlements will eat the entire economy, with Medicare being the biggest driver. And as long as it’s a completely tax- and debt- funded program, it will not survive. Paul Ryan’s budget begins the process of transforming Medicare—with a view to saving it—starting by changing the program for people under 55. The Bipartisan Policy Center has information on how it works:

Medicare

Under Ryan’s budget, the Medicare program would remain the same as under current law for everyone enrolled before 2023. Two changes would be made for those who become eligible in 2023 or later:

1) Beginning in 2023, the chairman’s plan increases the eligibility age for Medicare by two months per year until it reaches 67 in 2034.

2) Ryan’s budget introduces a competitive bidding system, backstopped by a cap on per beneficiary growth of 0.5 percentage points faster than the economy (GDP+0.5%). This reform is very similar to the proposal that he advanced in December 2011 with Senator Ron Wyden (D-OR), except that the annual growth cap is now set at GDP+0.5% instead of GDP+1%.

Seniors would be able to choose between traditional fee-for-service Medicare (FFS) and various private healthcare plans on a newly established, regulated Medicare Exchange, similar in structure to those created by the ACA. In each region, healthcare plans would be paid based on the cost of the second-least expensive approved private plan or FFS, whichever is less costly, risk-adjusted for the health status of their enrollees. The cost of this plan would establish the “benchmark” government payment in each locality. Therefore, the amount that the government contributes would be tied to the cost of health care in a given area.

Beneficiaries who choose to enroll in a plan that is more expensive than the benchmark – even if that plan is FFS – would be required to pay the incremental additional cost. A beneficiary who enrolls in the least-expensive approved plan would be rebated the full difference in cost from the benchmark.

Additionally, if costs per enrollee continued to grow faster than the cap of GDP+0.5%, seniors would have to pay an additional premium to make up the difference. For reference, CBO projects Medicare to grow at GDP+0.8% per beneficiary from 2023-2032 and GDP+1.7% thereafter under current law, which assumes that the cuts from the ACA remain in place and are effective.

Obama’s “plan,” on the other hand, is disturbingly cynical (HT: Weekly Standard):

According to the Congressional Budget Office, Medicare spending as a share of the economy is five times what it was in 1970, while all other federal spending combined (excluding interest) is 1.1 times what it was. By 2035, CBO expects Medicare costs to be nearly twice what they are today as a share of the economy, while all other federal spending combined will actually decline somewhat as a share of the economy. The debt problem is a Medicare problem. There is no way to avert fiscal disaster without significantly reining in the growth of that program. Even President Obama has acknowledged that no other solution, and certainly not his symbolic class-warfare tax proposals, could be sufficient, saying last July that “if you look at the numbers, then Medicare in particular will run out of money and we will not be able to sustain that program no matter how much taxes go up.”

And yet, even though he acknowledges this fact, the president has chosen to do nothing, and indeed to stand firmly in the way of doing anything meaningful to solve the problem. Obamacare’s Medicare cuts and its board of price controllers aren’t a solution — the CBO debt and Medicare growth numbers cited above already include them, and the agency (along with Medicare’s actuary, who works for the president) has said they are very unlikely to work. What is needed is a structural reform of the program, to enable it to deliver coverage to seniors far more efficiently by driving more efficient delivery of care. But seniors who are now in the program don’t want to hear that it’s going bankrupt, and don’t want to think about changes to it, so the politics of Medicare argue strongly against any kind of solution. The president and his party have chosen to make the most of that political reality, quietly raiding Medicare to fund Obamacare but otherwise leaving the program to its sorry fate. They have denied the need for reform. It would take real political courage to do otherwise.

Political courage. Hmmm, now where have we seen that lately?

0 comments