The presidential campaign is overflowing with claims from both sides designed to scare seniors into thinking Medicare is being gutted or about to end altogether. Lost in the flurry of attack ads and political messaging is a policy debate on how best to reduce the growth of Medicare spending, a common goal of both campaigns. If all voters know about Medicare is what the candidates tell them in TV spots and stump speeches, they are going to be poorly prepared to understand the changes that could be coming, no matter which party wins the White House.
Among the many “Mediscare” claims:
- An Obama spokeswoman says that “benefits would go down” under the Medicare plan put forth by Ryan, and largely embraced by Romney. Ryan says cuts in Obama’s health care law to the growth of spending “will lead to fewer services for seniors.” But actually, neither plan has much of a direct impact on current beneficiaries.
- A Romney campaign ad wrongly claims that “money you paid” for Medicare is being used to pay for Obama’s health care law. But the law doesn’t take money out of the existing hospital insurance trust fund. It cuts the future growth of spending. And in the future, seniors will still receive more in benefits than they paid in.
- Obama says Ryan’s “original plan would force seniors to pay an extra $6,400 a year.” But that’s based on an outdated analysis; Ryan’s current plan is more generous than his first. In fact, over the long run, both men propose capping the growth of Medicare spending at the same rate.
“There’s too much spinning and mud-slinging going on,” says David Walker, a former head of the Government Accountability Office, “and not enough focus on substance and solutions.”
Medicare spending is on an unsustainable path. Adequately funding the program has been a political challenge almost since its inception. As it stands, Medicare can’t cover all promised benefits without either more revenue or reduced spending. And both campaigns have proposed ways to solve that problem.
But there are reasons to doubt that either approach will work. Medicare’s chief actuary has warned repeatedly that Obama’s cuts to the future growth of payments to hospitals are too deep to be absorbed without adverse consequences. And Ryan’s approach runs a risk of allowing insurance companies to siphon off younger, healthier seniors and burdening traditional Medicare with the rest.
But political campaigns are not public-policy seminars, so voters — especially seniors — are getting more scare-mongering than honest or illuminating discussion. In what follows, we’ll attempt to clear the smoke and get down to the facts about Medicare’s problems, and the candidates’ dueling approaches to solving them.
The Obama campaign is trying to peg Mitt Romney and Paul Ryan as the guys who will “end Medicare as we know it,” and make seniors pay thousands more for health care. The Romney campaign is trying to paint President Barack Obama as the one who is “raiding Medicare,” and cutting benefits for current seniors. But the reality is that both campaigns propose cutting the growth in future Medicare spending — for good reason — and each is trying to scare seniors about the other campaign’s plan.
We’ll try to offer some substance, and sort through the Mediscare one claim at a time.
Claim: Medicare is in trouble.
Let’s start off with a reality check: Medicare has major financial challenges. As the population gets older, and medical costs continue to rise at current rates, Medicare cannot pay for all the benefits currently promised without an eventual tax increase, more federal borrowing, or both. That’s why both sides seek some way to slow the increase in medical costs, improve the efficiency of care, or get seniors to use fewer or less expensive medical procedures.
In the past, we’ve thrown cold water on claims — including one from Paul Ryan — that Medicare was going to be “bankrupt.” That’s still a big exaggeration. Medicare is not going out of business, and seniors won’t suddenly be stripped of their Medicare coverage. Under current projections, the system can muddle along unchanged for at least another dozen years. But then, tens of millions of seniors would start to feel the pinch.
The problem is most clear regarding the portion of Medicare that covers payments to hospitals. When it was enacted in the 1960s, Medicare provided only hospital coverage. Today, that’s known as “Part A” of Medicare.
Unlike the later add-ons that cover doctor bills and prescription drugs — which are mainly paid for with general government revenues — the hospital insurance program is financed through a payroll tax that goes into a trust fund similar to the Social Security trust funds. And that hospital insurance trust fund is going broke much more rapidly than the Social Security funds.
The 2012 report from the Medicare trustees estimates that the hospital insurance trust fund will be exhausted in 2024. That’s nothing new. In 1980, insolvency was expected in 1994. In 1990, the exhaustion date was 2003. But those dates have been pushed back mainly by repeated tax increases.
When Medicare was established, the payroll tax rate for the hospital insurance fund was set at 0.35 percent of taxable wages (paid both by worker and employer) in 1966, rising to what was supposed to be a maximum of 0.8 percent in 1987 and thereafter.
That was thought to be adequate at the time. The 1967 trustees report blithely concluded that the hospital insurance trust fund would more than cover expected payments, and after several years would build up a balance equal to one year’s benefits. But by 1970 — just three years later — the trustees report projected that “the trust fund would be exhausted in fiscal year 1973, unless additional financing is provided.”
Since then, Congress has repeatedly increased both the tax rate and the amount of wages subject to taxation. That 0.8 percent rate that was supposed to be adequate indefinitely nearly doubled to 1.45 percent by 1986. And the maximum amount of wages subject to taxation has gone up far more than that. Infinitely, in fact.
The maximum amount of wages taxed for Medicare was only $6,600 per year to start, but then soared to $135,000 by 1993. Since the following year, there has been no limit at all on the amount of wages and salary subject to Medicare taxation (unlike Social Security taxes, which today are limited to $110,100).
The Medicare tax increases have fallen especially on self-employed persons. Prior to 1984, they paid the same rate as ordinary workers. But since that time, they have paid both the employee and the employer share. Consequently, the tax rate for the self-employed has gone from 0.35 percent at the inception of Medicare to 2.9 percent today.
Obama’s health care law also adds a new tax on high-income earners that will go into the fund. Beginning next year, they’ll pay another 0.9 percent on earnings above $200,000 for single taxpayers or $250,000 for married couples. (Another tax measure in the law — a 3.8 percent tax on investment income for those upper-income taxpayers — wouldn’t go to the trust fund.)
In addition to raising the payroll tax, Congress has engaged in some budgetary sleight-of-hand to extend Part A’s solvency. As part of the 1997 Balanced Budget Act, for instance, payment for home health visits (beyond the first 100 after a hospital stay) were transferred from Part A to Part B, which, again, is mainly funded by general revenues.
So, what would happen if Congress chooses not to raise payroll taxes, or take some other action, and allows the hospital insurance trust fund to run dry on schedule? There’s little doubt that seniors would suffer. If the trust fund runs dry, the trustees state, “[b]eneficiary access to health care services would rapidly be curtailed.”
Officials couldn’t simply transfer money from the Treasury to make up the difference; according to the Congressional Research Service, officials have “no authority in law for a general revenue funding of the shortfall.” As a result, Medicare wouldn’t be able to pay all the hospital bills that it is supposed to cover.
The trust fund would continue to receive payroll taxes. But the trustees estimate the payroll tax at current rates “would cover only 87 percent of estimated expenditures in 2024 and 67 percent in 2050.” One possibility is that the government would simply pay hospital benefits at 87 cents on the dollar, leaving hospitals and seniors to figure out how to make up the 13 percent gap. And that gap would grow larger each succeeding year.
The financial problems of the rest of Medicare — covering physician services and prescription drugs — are purely financial, but more immediate.
Taxpayers fund those parts directly, and costs are rising rapidly. General revenues currently pay for 76 percent of the costs of doctors (Part B) and prescription drugs (Part D), with the remainder coming from premiums paid by beneficiaries. Technically these bills are also paid by a trust fund, but the law requires the Treasury to pay whatever is required to meet the costs. Currently, that means adding to the annual federal deficit, and the national debt.
The trustees warned that physician and drug costs “have been increasing rapidly,” and will continue to rise faster than the economy in general. This also applies to the Medicare Advantage program of private insurance that provides Medicare benefits, Part C. It includes both Part A and Part B.
Altogether, the revenue for Medicare in 2011 totaled $530 billion, 42 percent of which came from general government revenue, not payroll taxes or premiums. Total Medicare expenditures — $549.1 billion — covered care for 48.7 million Medicare beneficiaries, 40.4 million of them seniors and 8.3 million disabled.
So, as things stand, the government must use ever-larger amounts of general revenues, and increase beneficiary premiums, to cover the costs of physician services and prescription drugs. And unless something is done about the dwindling hospital trust fund, seniors face the likelihood of diminished hospital coverage starting in 2024.
Meanwhile, Medicare consumes an ever-larger share of the nation’s entire economy. Federal spending on Medicare (not counting the portion paid by premiums that seniors pay) now amounts to 3.1 percent of U.S. gross domestic product. And that’s projected to rise to 5.5 percent in the next 25 years, according to the most recent long-term budget projection by the nonpartisan Congressional Budget Office, using its “alternative” fiscal assumptions.
That “alternative” scenario assumes Congress will keep doing pretty much what it has done in the past. And if that happens, the CBO projects that today’s $1 trillion annual deficits will look puny by comparison, and the national debt will be worse than that of Greece.
Medicare is only one part of this larger problem, of course. But it’s a big one. And on the current course, under the CBO’s “alternative” scenario, the annual deficit in 2037 would amount to 17 percent of GDP, compared with just under 8 percent this year. And the federal debt owed to the public would balloon from 73 percent of GDP up to 199 percent. By comparison, Greek debt now is 132.4 percent of that nation’s GDP.
Claim: The other campaign wants to slash Medicare.
Both presidential candidates propose to restrain Medicare spending, yet each points an accusing finger at the other.
Romney, Aug. 15: [T]he president’s cuts of $716 billion to Medicare, those cuts are going to be restored if I become president and Paul Ryan becomes vice president.
Obama, Aug. 15: Their plan makes seniors pay more to help finance another tax cut for folks who don’t need it.
There’s good reason for wanting to slow down spending (see “Medicare is in trouble,” above). And it’s a common campaign ruse for one side to cast its ideas as “savings” that will extend the life of Medicare, while disparaging the other side’s ideas as drastic cuts that will slash benefits for seniors.
The candidates disagree strongly on how to accomplish their common goal, but both have proposed cutting — or, if you’d rather, “saving” — money from the future growth of Medicare spending.
Note that neither side has proposed slashing Medicare spending below its current level, despite the impression listeners might get from all this talk of “cuts.” They’re both talking about trimming the growth of future spending.
“The goal is to reduce the rate of growth slowly in the future, and both proposals would probably do that,” says Alice Rivlin, founding director of the Congressional Budget Office and now an economist with the Brookings Institution. Neither side, she says, is going “to propose actual cuts in Medicare or in Medicare benefits or drastic change in Medicare.”
And both campaigns propose about the same amount of spending reductions over the long term. “When you look at Romney’s long-term budget proposal and you look at Obama’s long-term budget proposal, they both plan to significantly reduce Medicare spending as compared to current law,” says David Walker, the former head of GAO. Walker, a crusader for reducing federal deficits, is now founder and CEO of the Comeback America Initiative, which promotes fiscal responsibility.
Gail Wilensky, who was head of Medicare under President George H.W. Bush and is now a senior fellow at Project HOPE, a health training and humanitarian organization, says the one commonality for both campaigns is that “Medicare as we used to know it is ending.” That’s for both campaigns, she says. “Medicare has been an open-ended entitlement program,” says Wilensky, explaining that the program spends whatever it costs every year to provide benefits. “You spend whatever it is that results given the benefits that seniors have and the reimbursement system that is in place,” she says. “Both sides have come to agree … we can’t keep doing that. And we shouldn’t have to, because the rate of spending just made no sense.”
Wilensky says, “They do have the same goal, but they are using quite different strategies” to get there.
The Obama administration aims to trim $716 billion in the future growth of Medicare spending over the next 10 years, largely by reducing the growth of payments to hospitals and others under that Part A umbrella. The new federal health care law also explores new reimbursement systems through pilot programs, with the hope that measures like bundled payments and integrated care for chronic conditions will lower costs. And it ratchets down payment levels for Medicare Advantage, which covers about one in four Medicare beneficiaries through private insurance. MA plans currently receive higher payments from the government on average than traditional Medicare — 9 percent higher in 2010. (Total Medicare spending over that 10-year period — 2013-2022 — is projected by the CBO to be $7.8 trillion, with the cuts in the federal health care law.)
The Romney-Ryan plan would institute a new premium-support plan beginning with new beneficiaries in 2023. Seniors would pick from private plans, or could choose traditional Medicare, all of which would be offered on a new Medicare exchange. Seniors could purchase private plans with government subsidies. Competition, Ryan has said, would keep costs down.
If key features of the Romney-Ryan plan sound familiar, that’s because a choice of private plans is already offered under Medicare Advantage. And the exchange and subsidies being proposed are similar to the exchanges and subsidies provided for younger workers in Obama’s Affordable Care Act.
The Romney campaign told us that the “Romney-Ryan plan” is Ryan’s latest Medicare plan, except it would not include any of those $716 billion cuts that were in the Affordable Care Act. Ryan’s plan did include the majority of those cuts, and overall, Ryan estimated his plan would lead to greater Medicare cuts/savings than the president’s.
Ryan estimated that his “Path to Prosperity” would spend $6.4 trillion on Medicare over 10 years (table S-3), and Obama’s fiscal year 2013 budget estimated $7 trillion for Medicare over the same time period (table S-4). So, with most of the Affordable Care Act spending reductions, Ryan’s plan would have cut about $600 billion more from expected Medicare spending than Obama’s.
Both Obama, and now the Romney-Ryan plan, would cap the growth in Medicare spending at gross domestic product plus 0.5 percent. (The health care law said 1 percent, but Obama’s 2013 budget dropped that to 0.5 percent.) If the provider payment changes, in the case of Obama, or competition, for Romney-Ryan, aren’t enough to keep spending that low, they both have fallback plans.
Obama’s Affordable Care Act calls for an independent board — the Independent Payment Advisory Board — to make recommendations on how Medicare can cut costs. It will be made up of 15 Senate-confirmed presidential appointees, who will be medical professionals, economists, health care experts and consumer representatives. Republicans have repeatedly disparaged them as “unelected bureaucrats.”
Should Medicare spending exceed certain levels, the IPAB would make binding recommendations for holding down costs, which Congress could override, at least in theory, with a three-fifths majority of each house. The IPAB’s authority is limited, however. By law, it cannot propose anything that would ration health care, raise taxes, raise premiums or cost-sharing, or otherwise restrict benefits or eligibility. It also cannot cut payment rates for certain types of providers or suppliers of services below what ACA calls for, at least until 2020. As a practical matter, according to an analysis by the Kaiser Family Foundation, any recommended savings would thus come from “Medicare Advantage, the Part D prescription drug program, skilled nursing facility, home health, dialysis, ambulance and ambulatory surgical center services, and durable medical equipment.”
The Romney-Ryan plan leaves the cost-cutting up to Congress. When we spoke with House Budget Committee spokesman Conor Sweeney about the plan in April, he suggested that Congress might choose to change provider reimbursements, means-test premiums, or cut administrative costs to reduce Medicare spending. But, of course, there are no legal restrictions on what any future Congress might do, either raising taxes or cutting benefits.
Cutting Medicare spending isn’t an easy proposition for either side. “There are not any magic answers out there,” says Marilyn Moon, senior vice president and director of the health program at the nonpartisan American Institutes for Research, and a former Medicare and Social Security trustee. Unless someone finds a way to more efficiently deliver more care at the same price, she says, “somebody is hurt. It’s either the beneficiaries, the taxpayer or the provider.”
Claim: Seniors will suffer.
Each side is accusing the other of saddling seniors with higher costs, reduced coverage or both.
Jen Psaki, Obama campaign spokeswoman, Aug. 14: For today’s seniors, with the Romney-Ryan plan, prescription drugs would go up, out of pocket expenses would go up, benefits would go down …
Ryan, Aug. 16: [Obama] raided $716 billion from Medicare paid for Obamacare. This will lead to fewer services for seniors. President Obama’s campaign calls this an achievement.
Campaign commercials often picture individuals who are clearly over age 65, implying — or saying outright — that current Medicare beneficiaries are going to suffer in some way under an opponent’s plan. A liberal group called the Agenda Project has even recycled a TV ad showing a Paul Ryan-type character dumping an elderly woman over a cliff from her wheelchair.
But both sides do it. In our examples above, the Obama campaign’s Psaki says that “today’s seniors” would see higher costs and reduced benefits under the Romney-Ryan plan, while Ryan says it’s the president’s cost-cutting that “will lead to fewer services for seniors.”
Actually, neither campaign’s plan changes Medicare for current beneficiaries much at all. Both Wilensky and Moon say they don’t see a direct impact on current seniors in either plan.
“I think most of the impacts of both of them would be indirect,” says Moon. And it’s unclear what may happen. Under the federal health law, seniors could be affected if some providers, unhappy with their payment rates, stop accepting Medicare patients. Also, if there is more coordinating of care and bundling of services, “that will change the way people get care,” she says. “Some of it could be good, some of it not so good.”
And under the Romney-Ryan plan, Moon says she is concerned that as current beneficiaries get older, “they’re increasingly going to be the only ones left in traditional Medicare. For them, then the cost of the program will likely rise faster.” And with that, there will likely be pressure to cut costs.
But if either of those things does happen, it won’t happen right away. Campaign ads and stump speeches that claim a major change would come for those currently on Medicare are thus mostly off base, and premature.
And some claims border on pure fantasy. A TV ad for Republican Rep. Allen West of Florida claims that the health care law “limits the medical procedures seniors can receive. And prevents them from seeing the doctors they choose.” That’s not true at all. The law doesn’t limit medical procedures. In fact, the law added free preventive care and increased prescription drug coverage. And nothing in the law prevents a Medicare beneficiary from seeing any doctor they choose. (It’s true that many physicians don’t accept new Medicare patients because of low reimbursement rates, but that’s a trend that started well before the new law was enacted. And the new law doesn’t affect physician payments.)
Some seniors on Medicare Advantage would likely see a small change. Those plans are paid more on average than traditional Medicare, and the federal law calls for slowly eliminating the extra payments. Some MA plans may offer perquisites such as an extra free pair of eyeglasses or gym memberships because of the extra payments, which could also be used to reduce premiums. The Medicare trustees have said the added payments to MA plans increase total Medicare costs: “These benefit enhancements were valuable to enrollees, but also resulted in higher Medicare costs overall and higher premiums for all Part B beneficiaries, not just those who were enrolled in MA plans.”
So, phasing out the extra payments reduces Medicare spending, but also would likely reduce added MA benefits, and total MA participation. One Congressional Budget Office estimate early in the health care debate said that the value of the extra benefits would drop to about $42 per month, or half the value they’d be without the law.
When Republicans talk about seniors losing benefits under the health care law, they’re normally referring to that change in Medicare Advantage. When Democrats talk about seniors losing benefits, or paying more for prescriptions, under the Romney-Ryan plan, they’re referring to the GOP-proposed repeal of the improved benefits contained in the ACA, which closes a gap in prescription drug coverage and provides some free preventive care. The “doughnut hole” gap in drug coverage affects about 8 million seniors.
“They’re both trying to minimize the impact on current seniors, for obvious political reasons,” says Walker. But while more of the changes can be made for younger people, “nobody can make a credible claim that seniors are going to be held harmless indefinitely,” he says. “The numbers are just that bad.”
Claim: Obama cuts Medicare to pay for health care law.
Romney wrongly claims that “money you paid” for Medicare is being siphoned off to pay for Obama’s health care law.
Romney campaign ad: Now, when you need it, Obama has cut $716 billion from Medicare. … So now the money that you paid for your guaranteed health care is going to a massive new government program that’s not for you.
The claim in this campaign ad is not true. The new law doesn’t take a dime out of the hospital insurance trust fund, which is already being drained because current benefits exceed current payroll taxes. Romney is actually referring mainly to future reductions in the growth of payments to hospitals, not to taxes paid by workers in the past.
The health care law does call for a $716 billion reduction in the future growth of Medicare spending, and does count the savings as a way to pay for expanding health insurance coverage for millions of under-65 workers. But it’s wrong to think that taxes paid in the past come anywhere close to paying for the projected cost of benefits in the future.
“It’s misleading to tell Medicare beneficiaries that they’ve already paid for Medicare, because in the future, that’s going to be less and less true,” Rivlin says. Seniors “will be getting more benefits than they paid for,” she says. And for Parts B and D (physician and drug benefits), as we’ve noted, 76 percent of benefits are paid out of general revenues. “It’s very generous,” Rivlin says, “from a beneficiary standpoint.”
In remarks on Aug. 15, Romney made it sound as if cutting future Medicare spending would not extend the hospital insurance fund’s solvency: “Under the current projections, Medicare will be insolvent in 12 years, and that’s not acceptable to me. That’s why we have worked very hard to come up with a solution. But, the idea that the President has put forward, cutting $716 billion out of Medicare? I think that’s a real mistake.”
But cutting the future growth of Medicare spending is exactly how Medicare’s solvency is extended. And without those cuts in the health care law, the insolvency date moves closer.
“If you’re taking 700 billion out of Medicare,” Walker says, “it means the trust fund bonds will last longer, because they’re already paying out more than they’re taking in.”
Claim: Obama is “double counting” Medicare savings.
Republicans have always argued that the Obama administration was double-counting the Medicare cuts by claiming that they both help pay for the coverage expansion in the law and extend the life of the hospital insurance trust fund. And there’s some truth to that argument.
As the new law was being debated in Congress, the Congressional Budget Office stated:
CBO, Dec. 23, 2009: CBO has been asked whether the reductions in projected Part A outlays and increases in projected HI revenues under the legislation can provide additional resources to pay future Medicare benefits while simultaneously providing resources to pay for new programs outside of Medicare. Our answer is basically no.
And after the law was signed and put in place, Richard Foster, Medicare’s chief actuary, said in 2011 congressional testimony:
Richard Foster, Jan. 26, 2011: In practice, the improved HI financing cannot be simultaneously used to finance other Federal outlays (such as the coverage expansions) and to extend the trust fund, despite the appearance of this result from the respective accounting conventions.
Both sides have used this conflict in different accounting methods in different ways, as it suited their advantage. The president insists his law simultaneously is paid for and extends the life of the hospital trust fund, while Romney and Ryan have insisted at different times that it does neither.
The fact is that CBO and the guardians of the hospital trust fund say Obama’s health care law does both extend the life of the trust fund and reduce the deficit, but can’t be also counted as paying for the law’s added spending. That’s a point in Romney’s favor. But Romney says he’d cancel those Medicare savings — or cuts — leaving him open to attack that he’d weaken the fund.
The bigger issue is whether those cuts in the federal health care law would actually materialize, even if the law is left unchanged. There’s reason to think they won’t. “Congress doesn’t have a very credible track record on making those things happen,” Walker says.
Since 1993, Congress has each year overridden scheduled cuts in the growth of payments to physicians. And the Medicare trustees report suggests the same thing is likely to happen to the scheduled cuts in payments to hospitals and and other non-physician providers.
The 2010 trustees report stated that unless providers are able to reduce their costs, “they would eventually become unwilling or unable to treat Medicare beneficiaries.” Therefore, the trustees said, “Many experts doubt the feasibility of such sustained improvements and anticipate that over time the Medicare price constraints would become unworkable and that Congress would likely override them.”
Foster, the chief actuary, states the case in even stronger words in his portion of the 2012 trustees report:
Richard Foster: The best available evidence indicates that most health care providers cannot improve their productivity to this degree—or even approach such a level—as a result of the labor-intensive nature of these services.
Claim: The Romney-Ryan plan “ends Medicare” and seniors will pay more.
Obama video, Aug. 15: Romney-Ryan: using bogus attacks to hide their plan to end Medicare.
Obama, Aug. 15: It was estimated that Governor Romney’s running mate, his original plan would force seniors to pay an extra $6,400 a year.
Obama campaign ad: Experts say Ryan’s voucher plan could raise future retirees’ costs more than $6,000.
The Ryan plan, now the Romney-Ryan plan, doesn’t “end Medicare,” and the claim about seniors paying $6,000 more under the proposal is outdated. It pertains to Ryan’s “original plan,” as the president said, but Obama didn’t make clear that Ryan’s latest plan includes a few key changes.
We’ve been debunking these claims about Ryan’s plan since 2011, and Democrats continue to criticize the old plan more so than the current one. The Romney-Ryan plan would leave Medicare unchanged for current beneficiaries, and for those age 55 or older.
Starting in 2023, new beneficiaries would still have the option of choosing traditional Medicare, but they also would have a choice of private plans. All would be available on a new Medicare exchange. Seniors would receive a subsidy in the form of a “premium-support payment” to cover the cost, or part of the cost, depending on which plan they pick. The premium-support payment would be tied to the cost of the second-cheapest plan, and that plan can’t rise faster than GDP plus 0.5 percent.
Would seniors pay more? Ryan’s old plan limited the rise in premium-support payments to the rate of inflation. An analysis from the Congressional Budget Office indicated that plan would have led to seniors paying about $6,000 more for a private plan than they would on traditional Medicare, which was not an option under the old plan. But the new plan, by tying the subsidies to GDP plus 0.5 percentage points, is more generous.
Nevertheless, it’s still possible that out-of-pocket costs would rise for seniors under the Romney-Ryan plan. CBO said that “beneficiaries might face higher costs.” But it didn’t attempt to estimate how much; CBO said there was a lot of uncertainty.
CBO also said that either the Ryan plan, or the current law under Obama, could lead to reduced care for seniors. CBO said of current law:
CBO, March 20, 2012: The [current law's] restraints on Medicare spending could lead to reduced access to health care; diminished quality of care for Medicare beneficiaries; greater efficiency of health care delivery; less investment in new, high-cost technologies; or some combination of those outcomes. CBO does not have the capability at this time to estimate effects of that sort.
As for Ryan’s plan, CBO said possible consequences could include the same effects, except that they would be “a great deal stronger” than under current law because Ryan would hold down overall spending more aggressively. Ryan’s plan also would increase the age of eligibility for Medicare slowly to age 67 by 2034. It is currently age 65.
We’ve heard Democrats and Obama argue that the premium-support system would eventually lead to the end of traditional Medicare, as younger and healthier seniors picked private plans and older, sicker seniors stuck with the traditional system. That could be one outcome. But the Romney-Ryan plan includes risk-adjustment measures that would fine insurance plans that have more healthy beneficiaries and pay plans that cover more sick seniors. Critics of the Ryan approach say the risk adjustment won’t function properly, but that’s a prediction that may or may not come to pass. It’s an opinion, not a fact.
And there’s reason to think Ryan’s approach could deliver coverage at lower costs — to both seniors and taxpayers — than traditional Medicare.
Three Harvard researchers recently concluded that private insurance companies already are offering plans to cover seniors at lower costs than traditional Medicare. They studied four years of data from the Medicare Advantage program, in which private insurers bid to cover seniors with government-subsidized private insurance.
What the Harvard researchers found is that nationally the second-lowest bid from private insurers was an average 9 percent lower than the cost of traditional Medicare.
Their study was published in the Journal of the American Medical Association‘s Aug. 1 issue. They conceded that one explanation for this might be that private plans had managed to attract younger, healthier seniors who are less expensive to cover. But they noted that another explanation might be simply that “they may use medical resources more efficiently.”
JAMA authors, Aug 1: To the extent that the 9% cost advantage reflects efficiency, it suggests there are better ways to provide the traditional Medicare benefit. Indeed, if plans are bidding above their cost of insuring beneficiaries, the 9% gap may underestimate the full efficiency gain.
However, the authors also noted that the Affordable Care Act would likely have an impact on these estimates through its Medicare spending reductions and new payment measures. And “if the ACA reduces traditional Medicare costs enough so that traditional Medicare becomes the benchmark, beneficiaries would no longer pay more to keep traditional Medicare; instead, MA plans would be costlier than traditional Medicare and require a premium.”
Overall, the authors said that Ryan’s premium-support plan would be “less risky” if the federal health care law was successful in lowering costs. “Premium support, based on competitive bidding, may offer a fiscal solution if ACA reforms fail, but at the cost of making Medicare beneficiaries responsible for solving Medicare’s fiscal crisis. Success of the ACA can make premium support less risky by lowering traditional Medicare costs and helping to monitor and improve quality in private plans,” the authors concluded.
We don’t see conclusive evidence that Ryan’s market-based approach will work either better or worse than Obama’s regulation-based system, or that either will work at all. But the claim that the Republican approach would “end Medicare” is blatantly false, and the claim that it would lead to higher costs for seniors is possible, but unproven.
Claim: We’re the ones saving Medicare.
Romney campaign ad: Mitt Romney and Paul Ryan will strengthen Medicare and protect the commitments made to current seniors.
Obama, Aug. 15: I’ve strengthened Medicare. … I’ve proposed reforms that will save Medicare money by getting rid of wasteful spending in the health care system.
These boasts about saving Medicare are simply opinion. Each side says it has the right plan, while the other side is going about it all wrong — though voters would be hard-pressed to figure out what exactly those plans are from campaign ads and stump speeches.
The Obama approach is to stay with government-provided traditional Medicare while putting pressure on health care providers to deliver care more efficiently, and instituting new payment models and coordination of care to cut costs. The Romney-Ryan plan turns to competition among insurance companies to lower costs and premium-support payments to induce seniors to pick their health plans based on price.
The commonality for the campaigns is: “We promised too much in Medicare; we need to reduce costs,” says Walker. “What’s the best way to do that?”
“It really is, which way do you think you have a better shot,” Wilenksy says. And, she says, it’s a good debate to have.
So far, though, we’re not having that debate on the campaign trail. “It’s very interesting trying to get any credible information with all the smoke being blown,” Wilensky says, “which is too bad because these are very serious issues.”
– by Lori Robertson
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