Summary

House Budget Chairman Paul Ryan (R-WI) is out with an updated version of his fiscal blueprint for the country, replacing last year’s widely panned plan to effectively end Medicare by turning it into a voucher system with an only slightly less destructive concoction. In his latest proposal, Ryan pitches a premium-support system that would offer seniors a voucher to buy either traditional Medicare or a private plan, purporting to control costs by allowing competition. But the vouchers wouldn’t be able to keep up with rapidly rising medical costs, shifting the burden onto beneficiaries and eventually rendering traditional Medicare an unviable program.

Click here to read more about the Medicare overhaul in Rep. Ryan’s previous budget, which was passed by the House GOP in 2011. 

The New Ryan Budget Undermines Medicare

The 2013 Ryan Budget “Reiterates Republicans’ Call Last Year For Overhauling Medicare.” From Bloomberg: “The proposal reiterates Republicans’ call last year for overhauling Medicare, though with some changes reflecting a compromise plan Ryan of Wisconsin has since written with Senator Ron Wyden, an Oregon Democrat. It would offer seniors, starting in 2023, subsidies they could use to buy private health insurance or use in Medicare. Either way, benefits would be capped, which would be a major change in how the open-ended program now operates.” [Bloomberg, 3/20/12]

Latest Medicare Proposal Relies On Competitive Bidding To Slow Costs. From Ezra Klein’s Washington Post blog: “The Republicans’ budget, released today, would rely on competitive bidding. And although the structure of such programs can get complex, the thing to know is this: Under the Ryan budget, private plans would send the government an estimate of the premiums they would charge for insurance coverage that is at least as generous as the standard Medicare benefit package. The second-lowest of those ‘bids’ would set the benchmark for how much premium support seniors receive. Seniors could spend that support on traditional Medicare, a less-expensive private plan (and receive a rebate), or a more-costly coverage package (and pay the difference).” [WashingtonPost.com, 3/20/12]

CBPP President: Vouchers Would Lose Value Over Time. From a statement of Robert Greenstein, the president of the Center on Budget and Policy Priorities: “Once seniors reached the age of eligibility for Medicare, they would receive a premium-support voucher to help them buy coverage, with the voucher apparently rising in value from year to year by the rate of growth in the Gross Domestic Product (GDP) per capita plus one-half percentage point — which is below the rate of growth in health care costs in recent decades.  Seniors who couldn’t afford to spend more than the voucher amount likely would have to purchase insurance that covered fewer health services as time went by, since the voucher likely would not keep pace with increases in health care costs.” [CBPP.org, 3/21/12]

Ryan Plan Would Shift Costs Onto Medicare Beneficiaries. From the Center on Budget and Policy Priorities: “The Ryan-Wyden plan would shift substantial costs to Medicare beneficiaries rather than protect them from cost increases, in part because the payment that beneficiaries would receive to help them buy coverage would likely fail to keep pace with health care costs.” [CBPP.org, 3/19/12]

Ryan Plan Would Eventually Make Medicare Unsustainable. From the Center on Budget and Policy Priorities:

Under premium support, traditional Medicare would tend to attract a less healthy pool of enrollees, while private plans would attract healthier enrollees (as occurs today with Medicare and private Medicare Advantage plans).  Although the proposal calls for “risk adjusting” payments to health plans — that is, adjusting them to reflect the average health status of their enrollees — the risk adjustment process is highly imperfect and captures only part of the differences in costs across plans that stem from differences in the health of enrollees.

Inadequate risk adjustment would mean that traditional Medicare would be only partially compensated for its higher-cost enrollees, which would force Medicare to raise beneficiary premiums to make up the difference.  The higher premiums would lead more of Medicare’s healthier enrollees to abandon it for private plans, very possibly setting off a spiral of rising premium costs and falling enrollment for traditional Medicare.  Over time, traditional Medicare would become less financially viable and could unravel — not because it was less efficient than the private plans, but because it was competing on an unlevel playing field in which private plans captured the healthier beneficiaries and incurred lower costs as a consequence.  Ryan-Wyden also would allow private plans to tailor their benefit packages to attract healthier beneficiaries and deter sicker ones, which only makes this outcome more likely. [CBPP.org, 3/19/12]

The New Ryan Budget Raises The Medicare Eligibility Age. From the Congressional Budget Office’s analysis of the Ryan plan: “In addition, the eligibility age for Medicare would increase by two months per year beginning in 2023 until reaching age 67 in 2034.” [CBO.gov, March 2012]

CBO: Effects Of Ryan Plan’s Reduced Medicare Spending “Unclear,” Could Include “Diminished Quality Of Care” And “Higher Costs.” From the Congressional Budget Office’s analysis of the Ryan plan:

Under the specified path, average real (inflation-adjusted) spending for new enrollees in Medicare would rise in coming decades but at a much slower rate than would occur under the other policy scenarios that CBO has analyzed. Average net Medicare spending for 65-year-olds in 2011 was $5,500. Under the baseline scenario, average spending per 66-year-old in 2030 would be $8,600 in 2011 dollars (56 percent more); under the alternative fiscal scenario, that ending would rise to $9,600 in 2011 dollars (75 percent more); and under the specified path, it would be $7,400 in 2011 dollars (35 percent more). In 2050, the corresponding spending for a 67-year-old would be, in 2011 dollars, $17,000 under the baseline scenario, $19,100 under the alternative fiscal scenario, and $11,100 under the specified path. By 2050, spending for new enrollees under the specified path would be 35 percent below that for the baseline scenario and 42 percent below that for the alternative fiscal scenario.

The implications of that substantial cut in spending relative to the other policy scenarios are unclear, because they would depend on both the specific policies that were implemented to generate that spending amount and the ways in which the nation’s health care and health insurance systems reacted to those policies. Possible consequences include the same kinds of effects noted for the baseline and alternative fiscal scenarios—reduced access to health care; diminished quality of care; increased efficiency of health care delivery; less investment in new, high-cost technologies; or some combination of those outcomes. In addition, beneficiaries might face higher costs, which could in turn reinforce some of the other effects. At least some of those effects would of necessity be a great deal stronger than under the baseline scenario or alternative fiscal scenario because spending would be so much lower. However, as with the other scenarios, CBO does not have the capability at this time to estimate such effects for the specified path of Medicare spending. [CBO.gov, March 2012, emphasis added, internal citations removed]