There is a lot of controversy these days about Medicare. The only consistent truth is that Medicare can’t survive left as is, as we know it if you will. The 2012 Trustees Report says the hospital fund will be exhausted in 2024 and that Part B costs will grow at an annual rate of 7.6%. The funding for Part B comes from general revenue and Part B premiums. In other words adding to the national debt and placing greater pressure on Medicare premiums. This growth rate is likely because the Trustees assume that the 30% cut in payments scheduled for 2013 will not go into effect while noting dire consequences if it does.
The current structure of Medicare allows beneficiaries to choose between traditional fee-for-service Medicare and Medicare Advantage Plans (Part C). This is private, for profit coverage. Over 25% of Americans with Medicare have opted for Part C. The Ryan plan continues the choice approach with one big difference, the growth in the government’s contribution toward premiums would be limited rather than increase as costs increase on an open-ended basis. Initially the premium support would be based on the lower of the cost for traditional Medicare or the second lowest cost competing plan. However, overall costs for Medicare could not exceed a benchmark based on growth in Gross Domestic Product for the US. In other words shifting from a defined benefit to a defined contribution approach to limit government spending.
Under the Affordable Care Act choice between traditional Medicare and competing plans under Part C remains. However, the government contribution toward Part C plans is gradually being reduced to levels closer to the cost of traditional Medicare. Over time this likely will mean higher premiums for Medicare Advantage Plans and/or reduced benefits. Not unlike the Ryan plan, current law sets spending targets for Medicare. If those targets are exceeded, cuts are required. This is accomplished through the Independent Payment Advisory Board established by the Affordable Care Act beginning in 2015. To meet the spending limits the IPAB must make recommendations but cannot reduce benefits or raise premiums and as a result is fairly limited to recommending further reductions in payments to health care providers. The Medicare Trustees Report says it is unlikely the already scheduled cuts will be allowed by Congress because they have not been allowed to go into effect in the past. In any case, it is hard to see how the system can withstand these cuts and any further cuts necessitated by the IPAB.
The fundamental difference between these two approaches is the way spending targets are reached. The Ryan plan sets hard caps and allows beneficiaries to adjust to rising costs by choosing among competing plans. The Affordable Care Act cuts payments to health care providers and competing plans, but ultimately relies on an appointed board to make further cuts in payments to providers.
Ultimately both approaches affect Medicare beneficiaries with higher costs. This may come from higher premiums, lower benefits or simply higher out-of-pocket costs because it will be more difficult to find a doctor accepting Medicare. Addressing Medicare’s long-term costs primarily by squeezing health care providers has consequences for the non-Medicare population as well because reducing already low payment levels will cause more shifting of costs.
Fixing Medicare means shared pain regardless of the approach. The question is how best to share that burden among all Americans and the health care system.
- Rep Paul Ryan will end Medicare as we know it … we better hope so! (quinnscommentary.com)
- Ryan plan for Medicare and you … (quinnscommentary.com)