If nothing is done to correct it, Medicare is scheduled to run out of money by 2024. That is less than 15 years! This fact makes opponents of Paul Ryan's budget, "The Path to Prosperity," sound ridiculous when they say his plan "shuts down Medicare." No, Medicare will shut itself down if we change nothing. And if we let it spiral out of control on its own, its beneficiaries will have no time to prepare or adjust to the sudden cuts and/or demise. So, let's take a look at "The Path to Prosperity" reform of Medicare...
Medicare, in its current form, has 75% of its recipients (35 million seniors) under a fee-for-service (FFS) insurance plan. This means: you go see a doc, receive some health service(s), the doc sends the bill straight to Medicare, and Medicare reimburses the doc with tax (and borrowed) dollars. Two problems: first, the separation of patient and cost leaves little incentive for the patient to demand the best value for his buck. Second, the reimbursements are one-size-fits-all; it is the same to all doctors and hospitals, no matter what the quality of care or how high the cost. This gives less incentive for hospitals to deliver the best care at the lowest price. (I have seen this part first-hand while rotating at Chicago's JHS Cook County Hospital.)
Paul Ryan's "The Path to Prosperity" budget does nothing to change Medicare for those aged 55 or older. The seniors already in, or close to, the Medicare system do not have to change or adjust to anything. For the future generations that need change to the Medicare system so that it still exists then---rather than putting the federal government's health care administrators in charge (since they have been trying to micromanage Medicare in order to control costs for four decades now and still have not succeeded)---Ryan's budget gives the power to the individual. In 2022, new Medicare recipients would have a "premium support system," not a voucher system. It essentially mirrors Medicare's prescription drug benefit program as well as the health care system that Congressmen and federal employees enjoy.
Side note: Medicare's prescription drug benefit was enacted in 2003 and it became the first truly competitive market in the program. Basically, beneficiaries get a fixed-dollar entitlement that they can use to buy drug coverage from a variety of competing plans. The insurers keep costs down to attract price-sensitive enrollees while the government has no role in setting premiums or drug prices. How is it working, you ask? Well, costs are now expected to come in 37-45% below original expectations over the first decade.
So, this budget addresses the ever-rising health care costs the same way other sectors of the economy have been (and should be now) corrected: with a well-functioning marketplace, cost-conscious consumers, and competing prices. In 2022, new Medicare enrollees would get a "defined contribution" or "premium support" payment from the government. (At first, it would equal the average cost of Medicare coverage. However, over time, its value would grow at the rate of inflation.) Beneficiaries would be given a menu of insurance options on which to spend their entitlement. The value of the "defined contribution" would be set independently of whatever insurance plan they select. So, if one selects a higher-than-normal premium, he would spend more out-of-pocket, and vice-versa. Also, lower-income seniors and those with greater health care risks would receive greater support, while wealthier seniors would receive less. (This should make the Dems very happy; each paying his "fair share" while also salvaging an entitlement program. Come on, Dems!)
Some opponents suggest this would only shift rising premium costs onto beneficiaries, but this is how Ryan's plan differs innately from anything the government has previously done. This plan sets into motion an entirely different market dynamic that achieves greater efficiency and lower costs. Cost-conscious consumers would look for the best value for their money, whichever insurance plan that best fits them and their families. Not only would cost-cutting innovation be rewarded, but doctors and hospitals would have financial incentives to reorganize to be more productive and efficient in order to capture a large share of this highly competitive marketplace. All of this would slow health care costs without compromising quality, essentially providing "more bang for your buck." Furthermore, the government's role in this is not micromanagement, phew! They would play a part in oversight: participating insurance companies must offer transparent pricing as well as meet both minimum-benefits and minimum-quality standards.
In the end, this solution keeps current Medicare recipients as is; it offers future generations a strengthened program with options; and it puts our health care system on a more productive and efficient path. And what is the alternative, you ask? (Beside letting Medicare implode in 2024.) Well, Obamacare basically expands the failed model of the current Medicare system. Why expand a bankrupting system to the entire nation? How will they control costs? Well, Obamacare will enforce a spending cap on Medicare via a board of 15 unaccountable, unelected bureaucrats---the Independent Payment Advisory Board (IPAB.) Since the IPAB is strictly limited in what it can recommend and implement, it would attempt to hit budgetary targets by essentially cutting Medicare payment rates for those providing services to the beneficiaries. These price controls encourage more consumption, forcing physicians to charge non-Medicare patients even more, inevitably driving up costs. Finally, the chief actuary for the Medicare program warns that Obamacare's cuts will drive scores of providers (about 15% of the nation's hospitals) from the program because payments will be too low to cover costs. Hello, rationing of care.
Unfortunately, Paul Ryan's budget did not pass the Democratic-controlled Senate; they voted against it (57-40) this past Wednesday. However, I believe it will remain a major issue as the 2012 elections near, as it should. Rep. Paul Ryan was the first to step up and provide a concrete budget plan while also opening the door to discussions on much-needed entitlement reforms. We need these reforms so that these programs still exist in the future! His budget also addresses many other issues including spending and tax cuts. Obviously, another post on "The Path to Prosperity" budget is in the making!
