The nonpartisan Kaiser Family Foundation (KFF) has come out with a new report showing that an overhaul of Medicare, of the sort the Romney-Ryan campaign favors, might increase costs for seniors.
The Obama campaign wasted no time in seizing on the report as proof that the GOP candidate’s “irresponsible” plan to turn Medicare into a voucher system would have “devastating consequences” for seniors. A spokeswoman for the Romney campaign fired back a statement saying the plan would include “no increase in out-of-pocket costs from today’s Medicare.” The Romney camp also cited a disclaimer in the report that said it should not be taken as an analysis of any particular proposal, including the Romney-Ryan plan for how to reform Medicare.
So what to believe?
First, it’s worth noting that KFF and the authors of the report are top notch when it comes to analyzing health care policy in a nonpartisan way. Beyond that, here’s what you need to know.
For the Romney campaign to imply that the KFF analysis isn’t based on Medicare-reform ideas put forth by the GOP ticket isn’t honest. One basis for the report is Paul Ryan’s 2013 federal budget proposal and the plan to reform Medicare that Ryan put out with Democratic Senator Ron Wyden. Romney has endorsed this approach, and here’s how it works: seniors would receive premium support — vouchers to buy private health insurance — from the federal government based on the cost of Medicare in their particular community or the second lowest private health insurance plan available that is actuarially equivalent to Medicare, whichever is cheaper. Seniors who choose to sign up for one of these options would pay the same premiums for Medicare they pay now. Seniors who choose more expensive plans, including traditional Medicare in some markets, would pay higher premiums.
According to KFF, 59% of seniors would have to pay higher premiums in order to receive the same Medicare plans they now enjoy, with the average premium increase coming in at $107 per month. Seniors living in areas with particularly expensive health care, like Miami, might have to pay much higher premiums to get the coverage they have today. Medicare would remain an option for seniors, as Romney and Ryan often say, but in order to choose this option, some seniors would have to pay more.
The problem with this analysis is that it ignores the whole point of the Romney-Ryan approach, which is to encourage seniors to choose health insurance that’s cheaper and which, they say, would be just as good and more widely available thanks to more competition. KFF includes charts on how many seniors would pay more if some switched to lower-cost options, but it doesn’t analyze how much cheaper overall options might be with more competition in the marketplace.
And the caveats in the KFF report don’t end at the disclaimer cited by the Romney campaign. The analysis is based on a scenario in which a premium-support plan for Medicare was fully implemented for all Medicare beneficiaries in 2010, which Romney never called for. (He favors no changes for people who are 55 and older right now.) The report doesn’t consider a whole host of factors that could affect how a premium-support model might change health care costs for seniors. It doesn’t analyze how the pool of seniors in traditional Medicare might change if private plans scoop up the youngest and healthiest seniors. The study also only looks at premiums and doesn’t factor in co-pays and other out-of-pocket spending that could affect how costs could change for seniors.
Here’s the bottom line: Medicare, which covers about 50 million people, has huge leverage to negotiate prices. It also has lower administrative costs than private insurance companies. The downside of Medicare is that its costs are unlimited. Three-quarters of seniors currently have traditional Medicare, which pays providers fees for each service it provides. This spending can be somewhat unpredictable and is tied to health care costs that are increasing at unsustainable rates. Unless overall U.S. health care costs grow at a much slower rate, there’s no way for the government to spend substantially less on the existing Medicare program without asking seniors to shoulder more of the burden. President Obama knows this, which is why the Affordable Care Act includes a trigger for a board to suggest cuts to providers if Medicare spending exceeds certain targets.
Ryan knows it too. That’s why he has said that Medicare is in trouble precisely because Medicare beneficiaries are too disconnected from the costs of their care. “When we pay directly for something and we know how much it costs, we have a strong incentive to demand the best value. In health care, we don’t,” he has said. It may be that asking seniors to become more involved in paying for their health care will cause them to demand cheaper prices. But if they can’t or don’t, the government might spend less on Medicare, but the costs won’t just evaporate. Seniors could find themselves on the hook for more of their health care costs under a premium-support model.