Ending the Medicare Debate

If you care about Medicare, then who lost last week’s Presidential debate?  Perhaps we all did.

That’s because both candidates favored some cuts in the Medicare program.  And cuts translate into a real impact on real people.

But no cuts could mean something even worse - unsustainable levels of spending in the Medicare program.

The question is what’s the lesser evil – a cut in payments to providers or a cut in benefits to individuals?  That’s the choice President Obama and Governor Romney gave us.

President Obama favored cuts in payments to providers.  Governor Romney favored cuts in benefits to individuals.  The difference in their positions became clear as Romney pressed his point about the $716 billion in “cuts” that Obama supported in the Affordable Care Act.

The “cuts” Obama favored actually fell into two categories that are built into the law – provider rate reductions and cuts to private insurers offering Medicare Advantage plans. 

The provider rate reductions arguably hit doctors the hardest, because ACA presumed that the so-called “doc fix” won’t happen anymore beginning next year.  The “doc fix” has had bipartisan support every year since 2002, because it corrects a provision in the Medicare reimbursement formula that would immediately reduce reimbursement by around 30%. 

The other provider cuts are realized by limiting the increase in future Medicare reimbursements to 5% per year – less than the 5.7% health care costs are expected to grow.

Romney was emphatic during the debate that as President he would restore not just these provider dollars, but the private insurers’ administrative dollars, too.

But Obama pointed out that these savings were used in part to finance the closing of the Medicare donut hole and new Medicare prevention benefits.

More significantly, they also change the trajectory of Medicare spending significantly over time.  According to the 2012 annual report of the Medicare Trust Fund trustees, even with the savings the overall cost of Medicare will grow from just under 4% of GDP today to just over 6% in around thirty years, and then grow a little higher through 2085 (those are the green lines in the chart). 

So Obama just cuts away at the increase.

Romney’s position is more extreme.  Because without the savings, the cost of Medicare will grow to 7% of GDP by 2040, and then skyrocket to over 10% (those are the red lines in the chart) by the time babies born today hit retirement age.

If we had to borrow to cover that, it could bankrupt America.

Romney obviously doesn't want to bankrupt America.  But he did say that he favored leaving Medicare alone for people age 60 and above. (Note: The Ryan plan says 55, but Romney said “60” in the debate.)

For everyone else, Romney wants to reduce the projected cost of Medicare by changing it to a voucher program. 

He would give a health insurance voucher to everyone when they turn 65, and let them use it to purchase either “traditional” Medicare or private insurance through a federal Medicare exchange. 

The value of the voucher will be tied to the second-cheapest plan available, and won’t keep up with health care inflation.  The Medicare recipient will have to pay the difference out of pocket, negotiate with a doctor to accept less, or ration their own care.

Romney made a good argument for at least doing the “doc fix” again by arguing that many doctors won’t be able to absorb a huge rate cut, and will drop out of Medicare if the rate reductions are put into place.  But Obama made an equally valid point that the vouchers could be even worse for recipients. 

If the arguments are left standing there, as they were in the debate, then something has got to give, and everyone's going to lose.

So why not give voters a different choice – one that could end the debate with everyone a winner?  Because there is another option that could save Medicare for our grandchildren without resorting either to borrowing or to huge provider cuts or to Medicare vouchers. 

We have all enjoyed a 2% payroll tax “holiday” for the last couple of years to help stimulate the economy.  When this holiday comes to an end, all we need to do is to dedicate 1.33% back to the Medicare Trust Fund.

If we did this, then Medicare would be solvent for the next seventy-five years.

That's a choice about taxes we all should be offered.  Maybe we’d vote no, but at least we’d be voting with our eyes open.

If you have questions about this column or wish to receive an email notifying you when new Our Health Policy Matters columns are published, contact gionfriddopaul@gmail.com.

A Dime's Worth of Difference in 2012

With the Iowa caucuses finally behind us, the Presidential campaign of 2012 now begins in earnest, and will dominate our news and lives for the next year.  I predict we will hear words like "Obamacare," “Romneycare,” “government takeover,” and “individual mandate” (usually in sentences following the word “repeal”) until we can’t stand it anymore.

If this is to be our fate in the New Year, then perhaps we can take some comfort in knowing that the debate probably won’t make a dime’s worth of difference about where most of us get our health care over the next few years or how we pay for it.

This is because the 2010 Affordable Care Act and the individual mandate were not really health reform.  They were efforts to preserve health insurance as we know it, by getting more people who can afford it to purchase private insurance, and more who cannot onto the Medicaid public insurance program.

So maybe we should take a minute between caucuses, primaries, and the general election to imagine what real health reform in America would look like in 2012.

It isn’t hard.  We just have to keep in mind a few facts.

First, governments already pay approximately $1.8 trillion of our roughly $2.5 trillion annual national health care bill.  Individuals pay another $300 billion out-of-pocket.  These numbers aren’t going down, whether the Affordable Care Act is upheld or repealed by the Supreme Court in June.

Second, there is plenty of money in our health system to delivery high quality health care to everyone who needs it.  We just need to target it to prevention as well as treatment.

Third, for the relatively small amount of money they put into the system, insurance companies have been given an outsized role in determining when, where, and how our health care is delivered.

Fourth, we woefully underfund our most important health services.  Public health and prevention activities have accounted for half of the gains in life expectancy during the last century, but receive far less than 5% of health care funding. 

And fifth, we criminalize instead of preventing and treating much of mental illness, and have made jails our nation’s largest mental health institutions.

With those facts in mind, we should acknowledge what real health reform isn’t.

It is not Romney’s or Obama’s “individual mandate” to buy private health insurance people don’t want and won’t trust.

It is also not Ron Paul’s notion of leaving people to fend for themselves in some non-existent “health care marketplace.”  No civilized nation does this and we are not going to be the first.

Here’s what a true American health reform – one that would result in healthier citizens, better access to care when it is needed, lower long term costs of care, and better quality – would look like.

1.       We would rebuild our health care delivery system around the federalized funding that already dominates health financing.  Medicare would be our basic national health insurance program, and be available to everyone.

2.       Medicaid would become a federal program like Medicare, and cover only long term care needs including chronic mental illnesses.  There would be no means-tested eligibility. States would not have to pay for it or administer it, so they could lower their state taxes accordingly.

3.       Private insurers, which are already such a small part of the overall health financing market, would play a role to which they are more suited.  They could offer supplemental insurance products covering first-dollar deductibles, co-pays, and additional, discretionary consumer services (like private hospital rooms and gourmet meals) at whatever prices they could get, for whatever profit they could make. 

4.       The Medicaid program could still require that people spend down a considerable portion of their own resources before it covered the remainder of long term care costs.  But we should allow everyone to set up tax-deferred long term care savings accounts to use for themselves, members of their families, or anyone else they designate.

5.       We would double the percentage of health dollars in public health and prevention over the next ten years.

How could we finance such as system of care?  The reality is that this system probably wouldn’t cost us any more than the current one does, and would probably cost less.

Of course, we won’t get this reform, but we can dream.  And I’d much prefer such a real policy debate about health reform in 2012 to the one we’re scheduled to receive – Mitt Romney attacking the individual mandate he invented and Barack Obama defending the individual mandate he opposed. 

If you have questions about this column or wish to receive an email notifying you when new Our Health Policy Matters columns are published, please email gionfriddopaul@gmail.com.