Some Medicare Ideas Worth Considering

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Maybe Joe Lieberman was feeling left out of the current debt ceiling and budget fight. That might explain why the independent Ssenator from Connecticut has chosen this moment to offer a new plan to reform Medicare. Lieberman laid out his proposal in a recent Washington Post op-ed. The headline, “How Medicare Can Be Saved,” is a stretch by any measure. But the plan itself might be the kind of compromise some Democrats and Republicans on Capitol Hill can endorse.

Lieberman’s plan is far less radical and ideological than Paul Ryan’s proposal to turn the public program into a private voucher system. And unlike left-of-center plans, it asks seniors to pay more out of pocket in both taxes and for medical services directly. As Ezra Klein has already pointed out, the proposal is really just a Medicare Band-Aid. But just because Lieberman’s pitch is not a long-term way to save the government insurance program, doesn’t mean it might not be worth doing. As the senator says in his op-ed, “The truth is we cannot save Medicare as we know it. We can save Medicare only if we change it.” Truth.

There are two ways to lessen the government burden associated with Medicare – reduce the overall cost of caring for seniors or shift some expenses off the government balance sheet. Lieberman’s plan focuses entirely on the latter.

His legislation – the clunky acronym PROMISE, standing for Protecting the Rightfully Owed Medicare Insurance for Seniors and the Elderly Act – would raise the Medicare eligibility from 65 to 67 and require seniors to pay more out of pocket for services. Liberals are aghast at the idea of raising the eligibility age and have offered a variety of reason why this is bad policy.

Paul Krugman of the New York Times points out that insuring 65 and 66-year-olds via Medicare is cheaper than through the private market, as Lieberman suggests. This is true, but what matters in the current debate is who pays the bill – the government or the seniors. Under Lieberman’s plan, the seniors would pay, which would save the government money. Igor Volsky notes, however, these seniors are the least costly of any current Medicare beneficiaries, although Lieberman says increasing eligibility to 67could save more than $100 billion over the next ten years. This is a small amount when you consider the overall cost of the program, but still significant.

Economists Austin Frankt and Aaron Carroll argue that Lieberman’s plan could actually increase Medicare costs by forcing 65 and 66-year-olds to forgo care, making them sicker and more expensive by the time they turn 67 and become eligible for Medicare. But once the Affordable Care Act mostly kicks in by 2014, 65 and 66-year-olds who need to buy insurance in the individual market will have a much easier time doing so. They may be eligible for federal subsidies and, while insurers will charge these folks more than anyone else, the older person surcharge will be limited by law. This is a world apart from current circumstances.

Lieberman’s plan would ask all Medicare beneficiaries to pay more out of pocket for various services. He would streamline the Medicare deductible to $550 total, set a 20% coinsurance rate for some services and require a copay on all Medicare services. Lieberman also wants to tack on copays to skilled nursing stays and home health care, although he says Medicare should set an “out of pocket maximum” so no seniors have to pay more than $5,500 cash for health care in a given year.

The PROMISE Act would also prevent Medigap plans – policies Medicare enrollees buy to blunt the cost copays and coinsurance – from completely covering all out of pocket expenses. All seniors should have to pay something when they utilize Medicare, argues Lieberman, even if it’s just a token amount. The PROMISE Act would also increase premiums charged to Medicare beneficiaries and more heavily tax high-income earners.

These are small steps and none will ensure Medicare will function decades from now about the same as it does in 2011. But asking seniors to kick in a little more will probably lessen their tendency to seek care when they might not need it. Streamlining deductibles, coinsurance and copays simplifies things and will probably make it easier for seniors to budget their costs and predict their expenses.

None of these ideas are Lieberman originals. He dug them out of some a health policy suggestion manual produced by the Congressional Budget Office in 2008 and others out of a CBO analysis published in March. But again, this doesn’t mean the ideas aren’t worth trying. The questions remaining: Can Democrats sign on to a plan that excludes some seniors from Medicare while asking those in the program to pay more? And can Republicans endorse a plan that maintains the basic single-payer structure of Medicare?

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