Paul Ryan's Magical Thinking

A Medicare exchange in which private plans compete with a public option?  A Medicaid program unshackled by federally determined program requirements and eligibility criteria?

Now that Governor Romney has chosen Rep. Paul Ryan as his running mate, these new visions of Medicare and Medicaid will become part of the health policy debate in every state.

They are both part of Vice-Presidential candidate Ryan’s now-famous Path to Prosperity proposal published earlier this year.

In his vision, Ryan attacks an “open-ended, blank-check” Medicare subsidy that in practical terms means a government that will pay providers what it costs to treat diseases even for the most expensive seniors. 

In his own words: 

“Medicare subsidizes coverage for seniors to ensure that coverage is affordable.  Affordability is a critical goal, but the subsidy structure of Medicare is fundamentally broken and drives costs in the wrong direction.  The open-ended, blank-check nature of the Medicare subsidy drives health care inflation at an astonishing pace, threatens the solvency of this critical program, and creates inexcusable levels of waste in the system.” (p. 48)

In his new Medicare program – which would apply to everyone under the age of 55 – Medicare would no longer be a government-run insurance program for all. 

Instead, it would be transformed into a voucher system, in which every person at the age of 67 would be given a certain amount of money to spend making a choice among “private plans competing alongside the traditional fee-for-service option on a newly-created Medicare exchange.” 

Ryan envisions that “all plans, including the traditional fee-for-service option, would participate in an annual competitive bidding process to determine the dollar amount of the federal contribution.” 

Here’s the most important part.  The plans with the best coverage won’t determine the amount of the 

Medicare subsidy.  Instead, the second-cheapest plan would; Medicare beneficiaries would be responsible for anything above this.

There’s more.  The Medicare subsidy payment would also have a “hard cap” of no more than one-half of 1% more than GDP.  If medical inflation were higher than that – as it is nearly every year – the Medicare recipient would pay the difference.

From a consumer perspective, Ryan’s Medicare exchange will be like the Affordable Care Act’s health exchange on steroids – except that it will still have a public option.

It will save the federal government money in direct care subsidies, but not through medical cost containment strategies like capping rates.  Instead, it fills in a number on the formerly blank check sent to seniors, and if this number is too small makes seniors responsible for rationing their own care. 

And if higher out-of-pocket costs aren’t enough, those seniors will also have to spend 15% or more of their payment on the administrative costs and profits of the private insurance plans they will now be offered. 

Finally, none of this comes without added federal bureaucracy.  Because the existing Medicare bureaucracy – which has little fat in it – will still be needed to manage the public option, the government will need to grow a new Medicare bureaucracy to manage and regulate the Medicare exchange.

It is magical thinking to believe that an approach that shifts costs to seniors, skims dollars for new bureaucracies, and has no direct health care cost containment features will result in better care at a lower cost.

Current seniors may be breathing a sigh of relief after considering all this, knowing that Ryan preserves Medicare as we know it for everyone over the age of 55.

But it’s too soon for a victory dance.  The biggest health care challenge a good portion of the 55+ group faces is how to pay for long term care.  Ryan has $810 billion of cuts over ten years in mind for the Medicaid program on which they will rely.

He wants to reform Medicaid “by converting the federal share of Medicaid spending into a block grant indexed for inflation and population growth…. States will no longer be shackled by federally determined program requirements and enrollment criteria.”

In other words, if a state chooses not to cover nursing home “room and board” or name-brand pharmaceuticals to absorb its portion of the $810 billion cut, it won’t have to. And if it chooses to count all of the non-institutionalized spouse’s income and assets toward the Medicaid eligibility of an institutionalized spouse, it will be allowed to.

Ryan is right that we need a debate about the future of Medicare and Medicaid.  He is wrong, however, in believing that reducing benefits can happen without pain.

Our Health Policy Matters published early this week because of the selection of Paul Ryan as Mitt Romney's running mate.  It will return to its regular publication schedule next week, with a new column on Wednesday, August 22.

Americans Want Medicare and Medicaid Left Alone

It turns out that our health policy still matters to us, which shouldn’t surprise anybody – except a few politicians next election.

A recent Rasmussen poll found that healthcare remains the second most important issue, behind the economy, to our people.  63% say it is very important to them in determining their vote.

And last week, a new Washington Post-ABC News poll was released.

source: Washington Post-ABC News Poll, 4/14-17/11

On the two major health care spending issues of the day – Medicare and Medicaid – the public had surprisingly strong opinions.  And it seems that some political leaders are incredibly out of touch with those opinions.

Only 21% supported cutting Medicare.  78% were opposed, 65% strongly.

Only 30% supported cutting Medicaid.  69% were opposed, 52% strongly.

This comes after an avalanche of political debate about deficits that blame them on Medicare, Medicaid, and Social Security. 

Many elected officials, led by Representative Paul Ryan, single out entitlement spending as what’s wrong with government spending these days.  They favor deep cuts to health, mental health, and other safety net programs, while favoring tax cuts for corporations and the wealthy.

From the Washington Post-ABC News poll, it doesn’t appear that the people are buying what these politicians are trying to sell.

People who follow the news regularly know that the deficit is as high as it is not because of entitlements, but because of a combination of the Bush tax cuts and Congress’s waging of wars in Iraq and Afghanistan without raising any money to pay for them.

More tax cuts and more wars aren’t going to help.

The poll results show clearly that people do not blame government-run health care programs like Medicare and Medicaid for the deficit.  After all, people recognize that they pay a dedicated Medicare tax on every paycheck they receive, but no war tax.  It’s pretty hard to miss.

So when they were asked how the budget deficit should be closed, 59% of the people said through a combination of tax increases and spending cuts.

Just as there is consensus on not cutting health care, there is a great deal of consensus about where to raise taxes.  72% thought income taxes should be increased on those making more than $250,000 a year.  54% were strongly in support of this; only 17% were strongly opposed.

Interestingly, the Affordable Care Act already contains a provision to add a new Medicare tax on unearned income for those making more than $250,000, but people would like to see regular income tax rates increased on these incomes as well.

Of course, almost 80% of poll respondents had incomes less than $100,000.  It’s always easier to support raising someone else’s taxes instead of one’s own.

However, in this instance, almost half of the people were surprisingly unselfish when it comes to pitching in to help. 

45% said they would support raising taxes on all Americans while making small reductions in Medicare and Social Security benefits to bring down the deficit.  While a slim majority – 53% - opposed this approach, only 40% opposed it strongly.

However, they are very clear that they don’t want Medicare changed dramatically, to a voucher program or privatized.  65% said they want it to remain the way it is today, versus only 34% who want it changed. 

What might be the reason? The Medicare program consistently pays out well over 90% of premium dollars in benefits.  People understand that private insurers cannot match this level of efficiency, and they don’t want to pay more money for fewer benefits, for their parents or for themselves.

Even most of the 34% supporting Medicare privatization change their minds when they factor in the cost increases associated with private insurance.  When asked if they would continue to support privatization if the value of the vouchers didn’t go up as fast as their premiums, 60% said no, leaving only 14% still in favor.

People support their government-run health programs. They want a Medicaid program that will help provide for the long term care needs of elders and people with disabilities, and provide safety net coverage for the poor.

As they’ve become more experienced with private managed care, people have become more skeptical of its benefits.  They don’t want someone making what could be a life or death decision for them or their loved ones based on cost.  And they certainly don’t want this decision made somewhere in a corporate backroom.

When people say “don’t touch my government-run health care,” they’re not trying to hold onto something we can no longer afford.  They’re keeping a firm grip on the one thing standing between many of us and misery.   

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