Sunday, September 30, 2012

The Medicare Debate, Part II

It barely made a blip on the news, so you may not have heard that the U.S. credit rating was just downgraded again for the fourth time in the past fourteen months. Downgrades are dangerous because they signal to other countries that the U.S. is now a riskier place to invest in, and this raises our cost of borrowing money. But the bigger problem for Americans is the reason for the downgrades: our government is less likely to pay its debts, and is therefore less likely to honor its commitments to people who are counting on government assistance in their senior years.

One of our biggest obligations is Medicare. It's the third-most expensive federal program ($560 billion spent in 2011, or about $3000 per working-age adult1), and due to the wave of retiring baby boomers its cost is expected to nearly double within a generation.2 Our current path is unsustainable — and will result in millions of people shelling out more for their medical care than they've been planning on.

So what do we do about it? The status quo approach is to cut costs by reducing pay for doctors who treat Medicare patients...but this would also reduce the quality of care (see my last post). VP candidate Paul Ryan has an alternative plan, one that's been both attacked and championed by people who probably don't really understand it. (I know — I was one of them.) But now that I've read his plan, here's what you need to know:

Nothing changes for anyone currently 55 or older.

For everyone else, when you become eligible for Medicare you will choose your own health insurance plan. You can choose the traditional fee-for-service option (the way it is now, where government reimburses doctors directly), or you can select from among a variety of private insurance plans within the new Medicare Exchange.

Every year, each insurer in the Exchange will declare the price that they must be paid in premiums in order for them to cover enrollees' medical costs. Medicare then pays for all or some of your premiums depending on your income and the price of your plan.

The "benchmark" that determines how much Medicare pays for is the price of the baseline plan, which is either traditional fee-for-service or the second-cheapest private plan, whichever is cheaper. But what's not clear is what "benchmark" means — that is, if you choose the baseline plan, are your premiums fully covered or not? What is clear is that of the people who select the baseline plan, Medicaid-eligible seniors will have no out-of-pocket expenses, other low-income seniors will receive additional assistance, and high-income seniors will have to pay a share of their premiums.

If you choose a plan that's more expensive than the baseline, you'll have to cover the difference. Choose a plan cheaper than the baseline and you'll receive a rebate for the difference.

Each insurer in the Exchange must abide by two ground rules. First, they have to cover at least the actuarial equivalent of the fee-for-service benefits package. This means that while each plan will provide different coverage, every plan's coverage will be at least as valuable as traditional Medicare and you'll know upfront what's included in your plan. Second, they have to accept all applicants regardless of any high-risk/pre-existing conditions. Medicare will support this provision by paying for the increase in premiums that's necessary for high-risk individuals and by regularly transferring money from plans with more low-risk seniors to plans with more high-risk seniors.

The vision here is to have companies compete for customers by thinking of creative and efficient ways to cover medical expenses for less than it costs Medicare to do so today. If this plan fails and the anticipated cost reductions don't pan out, there's a provision to cap Medicare expenditure growth at nominal GDP growth plus 0.5 percent. This means that if insurance prices rise faster than that upper growth rate, some seniors (Medicaid-eligibles excluded) would have to cover the spillover costs. Whatever the merits, this is a more truthful way of dealing with ballooning costs than trying in vain to hide the problem from seniors by paying doctors less.

No plan will magically wipe away the underlying problem of having an increasingly strapped government provide for an aging population...but applying the tried-and-true principles of competition and personal choice/responsibility is a step in the right direction.

1. There were 183.9 million U.S. adults ages 20-64 in 2009.
2. Peter G. Peterson Foundation. "Budget Explainer: Medicare."


  1. The amount of retirees is rising due to baby boomers, your grandmother is one and she earned retirement benefits from her union job same as your mom which lets the union members choose their healthcare for life . Most all republicans do not believe in workers organizing and having the power to force the companies they are making very rich,to provide them this care for life. I do not see Pauls plan as much different from our current medicare which BTW is Not failing and as long as it is federally run it wont.. But once again, its old business as usual. As you said yourself,  the word "benchmark" is still confusing for most average Americans  and the reason his plan hasnt made a blip is because nothing in it is clear and finished.  We, Paul, as a country, have ALWAYS needed a national healthcare option to protect our citizens from dying when they dont have the money to pay for it.  Someone you know who is close to you may need it oneday. Hillary told Bill years and years ago this was needed and the rights fought it, blocked, made up lies, etc.. Obama and his admin.. have come up with a "less than perfect" government funded plan which will basically ensure that medicare and medicade survive and its very similar to the way the UNITED Kingdom has run their healthcare for years and at least its in writing and has been discussed in the senate and congress for many years. Romney had NOTHING TO PUT ON THE TABLE for the last year when Obama kept asking the GOP's for their alternate ideas and they had nothing to offer but excuses "its coming, we need more time, etc." So just to wrap this up, to me Paul Ryans last minute plan that very closely resembles medicare anyway , isnt good enough for me. I personally want these richy rich corporations who get to pay people nothing per hour, to be forced to take care of workers who are the reason their company still exists.  Since I don't see any sign of that happening in the near future, I must give up on that idealistic wish for it to return to the days when people actually fought in the streets for a better way of life for their families and future generations. Unions do work as long as people have opinions and voices and I feel a plan like Canada, England lets just say the whole United Kingdom has had for Decades.. The citizens their defend their healthcare system very strongly and they pay a dear price for it too..I think its now 35% taxes for middle class and up.. But Paul please just consider this, people dont have to die, including innocent children, because they cant get or keep a job for WHATEVER reason.  The reason I am democratic, is because when the policies and failures of the past come to bite us all in our ass, its ok to say "try something different. Try new ideas, fight and scream and stomp your feet because your free to choose whatever life you want." We dont have to be perfect little model citizens doing everything we are told to because most of the time its a real dumbass doing all the talking.
    Now you have to admit that at least your still open minded to think about what your wOnderful Dharmzz views are all about and give me some credit for being a damn good writer too. In closing though I cant say I hate his plan but I surely dont want "business as usual" anymore and its time for some big and drastic changes..Im thinking about you, Renee', Austin and your children and so on. This isnt about me right now, its a start towards a right direction. Love you always my Paulie::

  2. For the record, in the first debate Romney said that seniors will "have at least two plans that will be entirely at no cost to them." This seems inconsistent with Paul Ryan's plan in a few ways.

    First, Romney should've said "at most two plans" since there's no potential for three or more no-cost plans. And if traditional fee-for-service is the cheapest option, Ryan's plan says that it will be the only no-cost option for seniors. Also, the plan says that high-income seniors will "pay an increased share of their premiums," which takes "no cost" out of the equation for them. Lastly, if insurance prices rise faster than nominal GDP growth plus 0.5 percent, any senior (except those eligible for Medicaid) could pay a portion of their premiums.

  3. Just re-read this as I was looking into something for class. You are such a good writer... :) I do think that seniors are going to be increasingly responsible for healthcare costs, out of necessicity. I really wish people had read more about the Ryan plan, a "voucher" seems to be the gov't picking up the cost for the baseline plan, exactly what is happening now, but with an increased involvement of private insurance plans in the administering of benefits. I hate how words like "voucher" catch on in the media and get demonized.