Is Medicare the cause of present and predicted budget deficits? Does it provide boutique care for seniors while the rest of the population struggles to pay for essentials? Or is Medicare an essential component of health care in an advanced nation, enabling older people to be contributing members of society for more years? Does Medicare reduce the burden of care on local facilities? Or does Medicare enable people to live “too long?”
Proposals for changing Medicare will continue to be controversial as the budget process moves forward, but no one is proposing to eliminate this popular program. That would be political suicide. A voucher program proposed by U.S. Representative Paul Ryan (R, Wisconsin) is included in the budget recently passed by the House. Implementation of this change would not take affect for citizens now age 55 and older.
A capped, annual voucher would be allocated for each Medicare recipient, who would use the voucher to buy health insurance in the private market. This is not a new concept. In some ways it is similar to the current Medicare Advantage program, where the private insurer gets a monthly payment to cover the Medicare recipient. As readers may know, the government had to increase the amount it paid to private insurance companies (the voucher) over the cost of traditional Medicare. Otherwise, the private market wasn’t interested.
Vouchers would not be sufficient to buy coverage equal to that of Medicare, according to a Congressional Budget Office analysis. What services would be covered, and what not covered, is not yet known. But a voucher plan would likely increase out-of-pocket costs. Nor does the voucher proposal include consumer protection, to prevent higher premiums based on age. It is not likely to survive the Senate budget negotiations just ahead.
The Ryan proposal is not the only proposal for reining in Medicare costs, which are indeed rising. Note, however, that Medicare costs are increasing at less than the rate of health care costs overall. Per enrollee spending in private health insurance grew at an average annual rate of 9.3 percent per year between 1970 and 2008. Medicare spending grew at an average annual rate of 8.3 percent. The industry-wide increase in health care costs is a major factor in the increased cost of Medicare.
Many deficit reduction proposals include changes to Medicare. One proposal would set a cap on federal spending for health care, (Medicare, Medicaid and Federal Employees Health Benefits), as a bundle. The amount chosen as the cap would not increase as overall health care costs rise. Thus a decline in relative purchasing power would ensue as the industry moves ahead. Another proposal would increase individual Part B premiums, currently $96.50 per month, thereby reducing the share paid by government. This would be simple to administer but for low income recipients, any increase would be a significant loss of income.
One popular proposal would increase the Medicare eligibility age from 65 to 67. This would indeed reduce federal spending for Medicare services. But those made ineligible by age and not enrolled in an employer program would have difficulty finding an affordable health care plan in the private market. Premiums for all ages of adults might rise, with the addition of an older population in the private market.
Some budget analysts suggest creating deductibles for supplemental (Medigap) insurance. If consumers have to pay more out of pocket, they will think twice before seeking time with the physician. This might, indeed, be the result. Since Medicare now “costs nothing” at the point of service, consumers are more likely to call the clinic to check out, for example, a lingering cough. But problems will occur when a patient ignores too much, for too long.
Other proposals would replace the current cost-sharing system with a combined Part A and Part B deductible, creating a universal coinsurance for both inpatient and outpatient Medicare services. The plan would place an annual cap on out-of-pocket expense that would likely be higher than an average Medicare consumer now spends. This sounds appealing, though ‘the devil is in the details.’ In variations of this model, the patient must have paid $500 out-of-pocket before coverage begins. Nearly half of all Medicare recipients have annual household incomes of $20,000 or less. A high deductable would put this plan out of reach for many.
Original Medicare is affordable and easy to use, at least for the consumer. In the present economic environment, however, it is not sustainable.
The Hospital Insurance Trust Fund (Part A) will likely be depleted within a decade. The Medicare Trustees announced a Statutory Warning in August, 2010. This requires the president to submit legislation to cut costs or increase revenues. Changes put in place by the Affordable Care Act will extend the program’s trust fund by twelve years, from 2017 to 2029. The Trustees caution, however, that gains are dependent on achieving significant health care savings in the next decade.