Manhattan Institute for Policy Research.
search  
 
Subscribe   Subscribe   MI on Facebook  Find us on Twitter      
   
     
 

Wall Street Journal Market Watch

 

Medicare Reform: Battling the Myths

September 13, 2012

By Diana Furchtgott-Roth

PRINTER FRIENDLY

For the past two years, leading Republican politicians, including vice presidential candidate Paul Ryan, have developed proposals to reform Medicare. As the campaign moves into its final laps, the topic is becoming more heated.

On Sunday, speaking in Melbourne, Fla., President Obama said, "Their voucher plan for Medicare would bankrupt Medicare. Our plan strengthens Medicare. No American should have to spend their golden years at the mercy of insurance companies."

But the word "voucher" does not appear in the Republican plan. And future seniors would continue to have a choice of traditional Medicare. They would just have other choices, too.

It’s clear that Medicare is in trouble. The nonpartisan Congressional Budget Office’s new cost estimates for Medicare, released last month in its new update to its Budget and Economic Outlook, raise projected Medicare spending by $136 billion over the next decade due to lower-than-expected productivity and higher than expected costs for goods and services.

Since Medicare was established more than 40 years ago, projections have gone in one direction: up. Almost everyone thinks that Medicare cost estimates will be revised up in the future

Replacing Medicare with vouchers does not describe Ryan’s Medicare proposals in the 2013 budget resolution, passed in the 112th Congress by the House of Representatives.

It’s true that in his 2010 Roadmap for America’s Future, in the 111th Congress, Ryan proposed replacing Medicare with vouchers. The 2010 proposal is not the same as the 2012 version.

A voucher program gives beneficiaries a set amount of money to use for a particular purpose — education, groceries, health insurance — and to spend for any permitted school, plan, or product they prefer.

The most common use of government-provided vouchers today is for the Supplemental Nutritional Assistance Program, formerly known as food stamps, which confers a debit card for certain types of food from any grocery store.

Ryan’s new plan is known as "premium support." Modeled after the Federal Employees Health Benefits Program, Ryan would let seniors who retire in 2023 and later choose from a variety of government-approved, competing and comprehensive health insurance plans, at different prices with different levels of service, including traditional fee-for-service Medicare.

Unlike vouchers, seniors could only pick a pre-approved plan. They could not take the money and put it all into a health savings account without buying insurance. They could only buy plans that the government certified would offer adequate insurance.

Why does the distinction between vouchers and premium support matter? Two reasons. First, Democrats such as President Obama are using the term "voucher" to demonize the program. Second, because premium support offers more protection for the consumer.

With a voucher, consumers can purchase any health insurance plan. Some critics are concerned that insurance companies will take advantage of seniors, or that seniors won’t choose enough protection and will end up imposing costs on taxpayers. With premium support, the government has pre-approved the permitted plans.

A voucher program could potentially offer options that are lower in cost than premium support. Perhaps because of this, vouchers have been criticized for not offering seniors enough funds to purchase a plan that is adequate to meet their needs. With premium support, seniors can be sure that one of the plans will be the actuarial equivalent of today’s Medicare plan, and they are not permitted to purchase a plan with less protection.

Ryan’s Medicare proposals are presented in the House of Representatives Fiscal Year 2013 Budget Resolution, on the Web site of the House Budget Committee. It can be found here.

The amount of premium support would be determined by the second least-expensive approved plan, or traditional Medicare, whichever is less costly. According to the budget proposal, "Private health plans would be required to cover at least the actuarial equivalent of the benefit package provided by fee-for-service Medicare."

This is similar to the Federal Employee Health Benefits program, which remains popular with government workers, even as health costs have risen over the past two decades. Many federal employees value their ability to keep the health plan during their retirement.

The advantage of premium support plans such as the FEHB is the variety of plans at different prices, ranging from traditional fee-for-service to managed care to health savings accounts combined with insurance for catastrophic care.

With more choice, plans have to compete for customers, translating into lower costs than would be the case otherwise. Competition is fierce among government plans during re-enrollment season for the federal plan, and Washington D.C.’s citizens are deluged with radio, TV, and bus advertising with pictures of beautiful healthy people promoting different plans.

Medicare Part D, the prescription drug benefit, charges lower premiums than had been forecast because seniors have a choice of plans, and insurers compete for their business. Similarly, but outside of Medicare, prices for Lasik eye surgery and cosmetic surgery have declined steadily. These services are usually not covered by insurance and so patients shop around.

The inescapable problem that requires changes in Medicare is that the current format, basically federal support for fee-for-service medicine, is unsustainable financially. The Congressional Budget Office projects the tab to rise from 3.7% of GDP in 2013 to 4.3% in 2022, and to 14% in 2085. Something needs to be done to constrain the growth of Medicare spending.

Obama on Sunday said, "Now, I’ve already strengthened Medicare. We’ve already added years to the life of Medicare by getting rid of taxpayer subsidies to insurance companies that weren’t making people any healthier, and in fact, were making things more expensive for everybody."

But the Affordable Care Act takes $716 billion from Medicare and uses it not to prolong the life of the program, but transfers it to the new Affordable Care Act, the new national insurance program for those under 65. This is not saving Medicare.

As Solomon Mussey, director of the Medicare and Medicaid costs estimates group in the Centers for Medicare and Medicaid Services, wrote in a memo on April 22, 2010, "In practice, the improved Part A financing cannot be simultaneously used to finance other Federal outlays (such as coverage expansions under the PPACA) and to extend the trust fund, despite the appearance of this result from the respective accounting conventions."

Medicare spending will be subject to decisions of the Independent Payment Advisory Board, a group of 15 unelected bureaucrats who will have the right to disallow devices, treatments, and drugs that they deem ineffective, reducing seniors’ choices. Physician reimbursements will decline, leading to fewer doctors available to treat Medicare patients.

Medicare cannot continue on its current path, however much we would like to pretend otherwise. Premium support for seniors retiring in 2023, modeled after the Federal Employee Health Benefits Program, offers a worthwhile alternative.

Original Source: http://www.marketwatch.com/story/medicare-reform-battling-the-myths-2012-09-13

 

 
 
 

Thank you for visiting us. To receive a General Information Packet, please email support@manhattan-institute.org
and include your name and address in your e-mail message.

The Manhattan Institute, a 501(c)(3), is a think tank whose mission is to develop and disseminate new ideas
that foster greater economic choice and individual responsibility.

Copyright © 2014 Manhattan Institute for Policy Research, Inc. All rights reserved.

52 Vanderbilt Avenue, New York, N.Y. 10017
phone (212) 599-7000 / fax (212) 599-3494