Mitt Romney’s campaign accuses President Obama of “raiding Medicare” — to the tune of $716 billion over 10 years — to pay for the 2010 national health care law. The Obama campaign says Romney, under a plan championed by his running mate, Paul Ryan, would “throw seniors onto the tender mercies of the private insurance market” by turning Medicare into a voucher program.
Behind the mutual accusations of Medicare destruction is a more fundamental debate about restraining Medicare’s costs that could serve as a microcosm of the entire election: regulatory oversight versus free-market capitalism.
The Obama plan
President Obama’s health care law of 2010 reduces spending on Medicare by $716 billion over 10 years by slowing the increase in payments to providers, not diminished benefits for seniors. A linchpin in this plan is a new, 15-member panel known as the Independent Payment Advisory Board. Beginning in 2014, the advisory board will have the authority to lower health care providers’ reimbursement rates to ensure savings, if the program misses spending-reduction targets.
Obama’s 2010 health reform law also calls for pilot programs in which doctors and hospitals working together as “accountable care organizations” receive bundled payments for treating a patient through an entire illness and not fees for every service. Advocates of such alternatives to fee for service believe they would reduce costly over-treatment of patients and provide higher-quality care.
Another feature of the 2010 law affecting Medicare is a reduction, already in effect, in the amount seniors pay for prescription drugs.
Criticism of the Obama plan
Health care analysts worry that the new law’s reduction in provider reimbursements could cause physicians to refuse to take on new Medicare patients. Medicare’s chief actuary, Richard Foster, warned in the Medicare trustees’ annual report in April that the new law could lower payments so much that “Congress would have to intervene to prevent the withdrawal of providers from the Medicare market and the severe problems with beneficiary access to care that would result.”
The Ryan plan
Ryan’s plan — which is more fleshed out than Romney’s and which Romney called “the same, if not identical” to his own Wednesday in a television interview — relies on competition in the private insurance market to keep Medicare costs in check. None of his provisions would affect anyone who is now 55 or older. Seniors who elect to enroll in the voucher program would receive premium support payments, which they would use to purchase private, Medicare-approved insurance plans that meet or exceed the benefit packages of traditional, fee-for-service Medicare.
After 2023, the first year of Ryan’s proposed program, the value of the vouchers is not certain to match the cost of plan premiums. As a “fallback to assure the federal government budgetary savings,” Ryan wrote, the annual increase in voucher payments would be capped at the growth rate of the nation’s gross domestic product, plus 0.5 percent.
If insurance costs were to grow faster than that, the Medicare vouchers could eventually be insufficient to pay for private plan premiums, and seniors would pick up the balance.
Ryan’s plan includes some protections for seniors. Low-income seniors who qualify for both Medicare and Medicaid “would continue to have Medicaid pay for their out-of-pocket expenses,” Ryan wrote, though he has also called for Medicaid spending to shrink as a share of GDP in 2023 and beyond.
Low-income seniors who don’t qualify for Medicaid but are under a certain financial threshold will get “fully funded accounts to help offset any out-of-pocket costs,” Ryan wrote.
All other seniors could avoid the private Medicare marketplace and exercise their right to enroll in fee-for-service Medicare as it exists today — an option that did not exist in earlier versions of the Ryan plan.
However, under the Medicare plan on Romney’s website — the one on which the GOP ticket is running — the fee-for-service Medicare option comes with a caveat: “If it costs the government more to provide that service than it costs private plans to offer their versions, then the [Medicare] premiums charged by the government will have to be higher, and seniors will have to pay the difference to enroll in the traditional Medicare option.”
Proponents say the voucher plan would provide many seniors with coverage more tailored to their needs and wallets.
Criticism of the Ryan plan
Analysts say that its caps on Medicare’s outlays would shift costs greatly to patients. According to a Congressional Budget Office review, Medicare’s expenditures for an average 67-year-old would, by 2050, be 35 to 42 percent lower than under current law. Critics also say the extension of the age of eligibility to 67 combined with Romney’s promised repeal of the 2010 law with its requirement that insurers cover patients with pre-existing conditions could leave many sickly 65 and 66-year-olds with no insurance.
Also, the Concord Coalition, a fiscal watchdog, concluded Ryan’s plan would not lead to dramatic Medicare cost reductions as “the proposal relies solely on competition among insurance entities to bring costs in line with very austere health care spending targets.”