Look Who’s Raiding Medicare Now

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PLANK SEPTEMBER 8, 2012

Look Who’s Raiding Medicare Now

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President Obama is spending the weekend campaigning across the state of Florida. That should give him another chance to talk about Medicare and what the Republicans plan to do it. When he does, he might want to cite a new report published two weeks ago, just as the conventions were about to get underway. The report never got much attention. It should.

As you know, Mitt Romney and Paul Ryan have proposed to transform Medicare into a voucher system, so that seniors get a fixed amount of money they can use to pay for insurance. Historically, proposals for voucher schemes have frightened seniors: Seniors worry that the vouchers won’t be big enough and many are not eager to start shopping around for policies. They’d rather just stick with the old-fashioned, simple-to-use government program.

Romney and Ryan are telling people that their plan is different. They say they’d make sure traditional Medicare was always among the insurance options available to seniors. They say they would put back the $718 billion that the Affordable Care Act takes out of the program, effectively making Medicare stronger than Obama would. And they say nothing would change for current seniors, since the voucher scheme would not accept enrollees until 2023.

That last part is particularly important politically: Romney’s attacks on Obama are designed to appeal to precisely this group, by suggesting that Obama took money away from them to pay for the Affordable Care Act. But the claim is wrong. The Romney-Ryan proposals for Medicare would very much affect current seniors.

It would, first, take away the free preventative care and extra prescription drug assistance that the Affordable Care Act added to Medicare. It’d also leave current seniors with higher out-of-pocket expenses in the future, because the providers could go back to charging higher prices. The scheme would leave traditional Medicare on shaky ground, because healthier seniors might leave it and make the program less financially stable. Finally, the Romney-Ryan plan includes a massive cut to Medicaid, on which many seniors rely for nursing homes and long-term care.

What would that mean for a typical senior, in hard dollar terms? That’s where the paper, from the Center for American Progress Progress Fund, offers some insight.

It is based on the Medicare (and Medicaid) proposal in the most recent Ryan budget, since Romney hasn’t provided sufficient details for making such estimates. The lead author is David Cutler, the Harvard University economist and advisor to Obama during the last presidential campaign. Along with Topher Spiro and Maura Calsyn from the Progress Fund, Cutler crunched the numbers and found that somebody turning 65 now would end up paying about $11,000 in extra retirement costs. Somebody who was still 54 now would pay an extra $59,500. (This chart has the full results.) The CAP Action Fund is a progressive advocacy organization, but Cutler is among the nation's most respected health economists. And although I can't vouch for these numbers, the general idea—that even current seniors would pay more in the next few years—seems self-evident.

The standard conservative objection to estimates like these is that they don't account for the magical power of competition, which, starting in 2023, would make health care less expensive for everybody. The paper addresses that criticism, citing, among other things, the Congressional Budget Office:

Gov. Romney and Rep. Ryan claim that privatizing Medicare will increase competition among health plans, allowing market forces to lower costs. But the Romney-Ryan plan does not address underlying health care costs or consider that the health care market functions differently than other consumer markets. Ample evidence exists that premium support would not foster the type of competition that reduces prices. The Congressional Budget Office concludes that premium-support plans would achieve much of their federal savings from “increases in the premiums paid by beneficiaries, not from increases in the efficiency of health care delivery.”

There also is evidence that “Medicare beneficiaries are less responsive to differences in premiums when choosing a health plan than the privately insured population is, so plans may have less incentive to compete on the basis of premiums in the Medicare market than in the privately insured market.” These concerns have played out in the part D market, where most savings achieved by the program are a result of factors other than competition, including lower enrollment and greater generic utilization.

One other note. Romney and Ryan have attacked Obama for “robbing” or “raiding” Medicare with those $716 billion in Medicare cuts. But those cuts don’t come from seniors. Instead, they come from payments to the health care industry, including insurers. (As discussed previously, I'm not worried these cuts would meaningfully affect seniors, even indirectly.) If Romney and Ryan are serious about putting that money back, they’re effectively giving that money back to those same groups, including the insurers. Via e-mail, Cutler told me it’s possible to estimate, roughly, how much the insurers would benefit from this change:

According to the CBO, people aged 65 in 2023 (the first year of the voucher) are expected to account for 4 percent of the $1.23 trillion in Medicare spending anticipated in that year. Not all of this revenue would be newly available to private plans; some of these expenditures currently flow through private Part D plans, some of the voucher recipients would have voluntarily chosen to enroll in a Medicare Advantage plan anyway, and some would not do so in any case. After making adjustments for the Part D spending and those who would have been in MA already, an estimated $31 billion in Medicare funds would be newly available to private plans in 2023. The GAO has estimated that insurers earn profits of between 4.1% and 6.6% on revenue. Thus, the newly available private insurer revenues would generate private profits of $1.3-$2.1 billion in 2023. These profits would quickly mount. By 2030, new profits for private insurers would be as high as $16 to $26 billion.

If you don’t feel like wading through the details, here’s the bottom line. Romney and Ryan say Obama took your Medicare money and gave it to the uninsured for their coverage. Obama could say, just as plausibly, that Romney and Ryan would take your money and give to the insurance companies for their profits. (For the record, I'd consider both over-simplifications.) And while conservatives could make an honest argument for why seniors would be better off in the Republican voucher schemes, most of the evidence I’ve seen suggests that Cutler, Spiro and Calsyn are correct: In the end, seniors would suffer if Romney and Ryan get their way.

follow me on twitter @CitizenCohn

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