Rep. Paul Ryan's Medicare privatization plan increases costs, budget office says
The Republican congressman's proposal to privatize Medicare would mean a dramatic hike in U.S. healthcare costs for the elderly, an independent analysis finds. Seniors would pay almost double — more than $12,510 a year.
 Rep. Paul Ryan's office did not respond to repeated requests for comment about the CBO analysis. (Alex Wong / Getty Images) |
Reporting from Washington—
When House Budget Committee Chairman Paul D. Ryan unveiled his blueprint this week for cutting federal spending by $5.8 trillion over the next decade, he argued that a revamping of the government's health safety net would rein in skyrocketing costs.But because commercial insurers cost more to run than government plans, the Wisconsin Republican's proposal to privatize Medicare starting in 2022 would actually spark a dramatic increase in how much the nation spends on healthcare for the elderly, according to an independent analysis by the nonpartisan Congressional Budget Office.
Even as the federal government cut its own spending, seniors would end up paying almost twice as much out of their own pockets — or more than $12,510 a year, the CBO estimates. Altogether, the total cost of insurance would be higher.
Ryan's office did not respond to repeated requests for comment about the CBO analysis. But the congressman has repeatedly said that applying what he calls "free-market principles" to the insurance market is the best way to control costs.
"We can drive innovation, productivity improvements and performance in healthcare," Ryan said Tuesday in a presentation to the conservative American Enterprise Institute in Washington.
Under Ryan's proposal, seniors and others on Medicare would begin receiving a set amount of money, starting in 2022, to offset the cost of buying a private insurance plan that would replace the federal government's Medicare plan.
Wealthier and healthier seniors would receive less, while poorer and sicker beneficiaries would get more.
This voucher system — or "premium support," as Ryan calls it — would give the typical 65-year-old American $8,000 annually to buy a health plan, about the same amount of money that analysts expect the Medicare program would spend on that senior in 2022 under the current program.
But the CBO report says the money won't be enough. The cost to buy private insurance, plus the projected out-of-pocket spending that the 65-year-old would have to pay for medical care in 2022, would total about $20,510 per year, according to the CBO, which both Republicans and Democrats rely on to independently evaluate the effects of proposed legislation.
That would leave the senior to pay the difference, an estimated $12,510.
By comparison, if the current Medicare program is continued, the CBO estimated that it would cost about $14,770 to provide insurance to that same 65-year old in 2022, assuming Congress did not dramatically slash payments to doctors.
That would leave the senior to pay just $6,150 out of pocket.
"A typical beneficiary would spend more for healthcare," the CBO concluded about Ryan's proposal.
A major factor in the price difference is the relative inefficiency of private health plans. Even though commercial insurers may do a better job of managing their customers' care, they are not as efficient as Medicare at controlling costs. "Both administrative costs [including profits] and payment rates to providers are higher for private plans than for Medicare," the CBO noted.
That is consistent with previous research by the budget office and the independent Government Accountability Office, which found that private plans that contract with the federal government to provide Medicare Advantage plans to seniors have higher administrative costs.
Because Medicare covers about 48 million Americans, it is also able to use its unrivaled market clout to pay lower prices to hospitals and doctors, saving money.
The new healthcare law signed by President Obama last year relies on that market power by using Medicare to encourage hospitals and doctors to become more efficient and work more closely together, which many healthcare experts believe is crucial to controlling healthcare costs.
The Ryan proposal would eliminate that by repealing the healthcare overhaul.
That is "exactly the wrong direction, the opposite from what you want to do," said Robert Greenstein, president of the left-leaning Center on Budget and Policy Priorities, which also analyzed the Ryan budget. "What you want to do is cover more people and reduce costs."
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GOP bets voters will choose fiscal well-being over healthcare safety net
House Republicans' plan to cut $5.8 trillion from the federal budget over 10 years would find its largest savings by slashing popular programs that cover about 100 million Americans.
 Standing with fellow Republican House members, House Budget Committee Chairman Paul Ryan (R-WI) speaks at a news conference held to unveil the House Republican budget blueprint at the Capitol in Washington (Kevin Lamarque / Reuters / April 6, 2011) |
Reporting from Washington—
House Republicans' ambitious plan to cut $5.8 trillion in federal spending over the next decade is built on a politically risky revival of the longtime GOP quest to scale back the healthcare safety net and hand consumers primary responsibility for controlling costs.The budget resolution unveiled Tuesday by House Budget Committee Chairman Paul D. Ryan (R-Wis.) would dramatically improve the nation's overall fiscal picture, reducing deficits projected in President Obama's budget and moving the federal government into surplus by 2040, according to the nonpartisan Congressional Budget Office.
Republicans are betting that a high-profile fight over government spending will swing budget-minded voters their way in the 2012 campaign.
But the largest savings in their plan would come from slashing popular programs that cover about 100 million Americans.
The GOP proposal would phase out direct payments to doctors and hospitals under Medicare, scale back the Medicaid program for the poor and disabled, and throw out government insurance subsidies that the new healthcare law is to make available to millions of Americans starting in 2014.
That would force seniors to pay more for their healthcare and would likely make states cut back their Medicaid programs, the Congressional Budget Office concluded.
Gone would be Medicare's open-ended pledge that the government will pay providers for all services the program covers. Republicans instead propose to provide fixed subsidies and let seniors shop for private insurance.
In place of the federally overseen Medicaid insurance plan, the proposal would allow states to construct their own plans with their own standards and pay the costs with block grants from Washington.
House Republican leaders argue that cuts are necessary to save the programs. "This is not a budget. This is a cause," Ryan said. "The social safety net is fraying at the seams."
Former House Speaker Newt Gingrich espoused similar transformations to government healthcare programs when Republicans swept to power in 1994, and George W. Bush ran for president on a promise to introduce more market forces into Medicare.
Despite decades of experiments, however, it is far from clear that market forces will hold down the nation's skyrocketing healthcare tab. It is equally uncertain that states will be able control Medicaid costs without stripping away benefits from millions of people.
Critics believe Ryan's approach will shift the higher costs onto the shoulders of individuals, much as the change from defined-benefit pensions to 401(k) plans has increased retirement risk for many families.
That could mean that senior citizens, the disabled and the poor will pay more, even as Washington pays less.
Chip Kahn, president of the Federation of American Hospitals and a former senior GOP congressional aide, warned that Ryan's proposal would "result in the loss of health coverage for millions of low-income Americans, reduce critical benefits for others, and make it more difficult for hospitals, clinicians and other healthcare providers to deliver the care so many need."
Republican congressional leaders and conservative activists hailed Ryan's plan Tuesday as an overdue reckoning with the nation's future.
"This budget reflects an honest assessment about the current unsustainable trajectory of Medicare and saves the program for future generations," said Rep. Tom Price (R-Ga.), a leading critic of the healthcare law Obama signed last year.
Former Republican Sen. Alan Simpson and former Clinton White House Chief of Staff Erskine Bowles, the chairmen of the bipartisan National Commission on Fiscal Responsibility and Reform, praised Ryan's plan as "serious," but they criticized the proposed cuts for having "a disproportionately adverse effect on certain disadvantaged populations."
In addition to healthcare cuts, Ryan's plan reduces spending on so-called discretionary programs, including renewable-energy programs, agriculture subsidies and housing aid. It would make food aid to the poor a block grant.
The plan freezes pay for federal employees through 2015 and seeks to reduce the federal workforce by 10% over three years. It eliminates programs deemed unnecessary by the Defense Department.
At the same time, Ryan's plan would permanently extend tax cuts signed into law by President George W. Bush.
It lowers the top tax rate for individuals and businesses from 35% to 25% and simplifies the tax code by eliminating unspecified loopholes, tax breaks and tax brackets.
Ryan did not propose ways to bolster Social Security, but urged the president and Congress to come up with a plan.
The broad outlines of the GOP proposal suggest that starting in 2022, Americans would have a vastly different experience when they became eligible for Medicare. Eligibility would be raised from 65 to 67, the CBO said.
Instead of signing up for the government insurance program as they do now, seniors would shop among private insurance plans and use a government subsidy to defray part of their premiums.
Seniors with higher incomes would receive smaller subsidies, under a formula to be determined. All plans would have to offer a basic set of benefits established by the federal government.
This "defined contribution" model draws from the system that the Bush administration created when it developed the new Medicare Part D drug benefit in 2003. Under that program, seniors select a private drug plan and split the premium with the federal government.
Part D has proven less expensive than originally projected, due in part to the growing popularity of cheaper generic drugs.
But the program also has demonstrated that seniors don't always select the best plan for them. Data show that seniors often stay with the wrong plan rather than going through the laborious process of selecting a new plan every year.
"The idealized notion that older consumers would be making these annual choices may have some merit as an idea, but it doesn't seem to be taking place in practice," said Patricia Neuman, who directs the Medicare Policy Project at the nonpartisan Kaiser Family Foundation.
Choosing the right health plan could become even more crucial if federal subsidies do not keep up with premiums.
In 2010, half of the nation's Medicare beneficiaries had incomes of less than $21,000 a year, according to a Kaiser Family Foundation analysis.
Americans who rely on Medicaid could see even more dramatic changes.
Though Ryan proposed $30 billion in cuts to Medicare spending over the next decades, he proposes to slash federal Medicaid costs by $771 billion as the government switches to a system that provides states with block grants.
Ryan described the proposal as a way "to give states the flexibility they need to better assist their most vulnerable populations."
But as governors across the country move to cut hundreds of thousands of people from the Medicaid rolls to make up for disappearing federal aid, many experts, including those at the CBO, expect that the most likely effect will be more cuts.
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