Would Plan Save Medicare or “End” It?

Would Plan Save Medicare or “End” It?

Would a House budget plan to overhaul Medicare save money or simply shift more of the costs now paid by the government to Medicare beneficiaries?  The fiscal year 2012 plan recently passed by the U.S. House contains a controversial overhaul of Medicare.  Supporters of the plan, including House Budget Committee chairman Representative Paul Ryan (WI-1), say,

“This budget will save Medicare for future generations, protecting those in and near retirement from any changes while forging for younger workers a Medicare program modeled on the system of affordable, quality health coverage options now enjoyed by Members of Congress.” 
But TSCL is concerned that it would increase costs for seniors.  The proposal would split Medicare into two systems.  People age 55 and older would stay in the current system.  People 54 and younger would be under restructured Medicare. 

Those under the new system would be provided with a fixed amount of money each year, known as “premium support,” with which to purchase their health coverage from private insurers.  Premium support is similar to the type of health coverage available to Congress, but there’s a key difference in how the government’s portion of the premium would keep up with rising health care costs. 

The premium support for Members of Congress tends to rise with healthcare costs. Ryan’s Medicare plan is designed so that the premium support payments would only go up as fast as inflation in the rest of the economy — even though healthcare costs are rising much faster.  Thus, Medicare beneficiaries would wind up paying a far greater share of the cost than they do now. 

In an interview with NPR’s Julie Rovner, Austin Frakt, a health economist at Boston University, gave the following example of how the health coverage that Members of Congress get would compare with the Ryan plan for Medicare:

How the Ryan Medicare Plan Compares With the Congressional Health Plan 


           The most popular federal worker plan is the standard option Blue Cross/Blue Shield Plan that has a total annual premium in 2011 of just under $7,000.  The federal government pays just under 70 percent of that amount, and federal workers, including Members of Congress, pay 30 percent.  This year that would be roughly $4,900 and $2,100, respectively. 

            Say that next year the plan’s total premium rises to $7,500, (an increase of 7%).  The federal government’s portion would be $5,250 and the difference would be what enrollees pay, or $2,250, a total annual increase of $150. 

            Now under the Ryan Medicare plan, say the government provided the same $7,000, and assume that in the first year that would be enough to cover the full cost of a low-cost insurance plan.  What happens when that plan’s cost goes up to $7,500 next year?  It depends on inflation.  Say that inflation was zero.  The premium support provided by the government would stay at $7,000 leaving the entire increase of $500 in the premium to be paid by the beneficiary.  And in every subsequent year, Medicare enrollees would be responsible for the difference between overall inflation and health inflation.

In addition to higher costs for younger Medicare beneficiaries, the House budget plan was not clear on what happens to the older seniors who are now age 55 and up who would remain under the current Medicare system.  The proposal would require premiums for those seniors to be adjusted based on “current law expected costs.”  But those costs aren’t well established today. 

According to the Medicare actuaries who are responsible for projecting Medicare Part premiums, Part B estimates are unfeasibly low because the estimates don’t factor in the full cost of physician payments, which Congress currently tends to adjust annually.  In other words, future costs will likely exceed today’s estimates and be much higher.  TSCL has concerns that older seniors would also wind up paying a bigger share of the costs than they do now.

TSCL is interested in hearing your thoughts about this proposal to change Medicare.  Please send us an email and tell us what you think!
Sources:  “Voters Dislike GOP Plan to Change Medicare, Medicaid,” The Wall Street Journal, May 4, 2011.  “Remaking Medicare:  Saving Money Or Shifting Costs?” Julie Rovner, NPR News, May 4, 2011.