On Sunday, GOP House Speaker John Boehner and Budget Committee Chairman Paul Ryan agreed with President Obama's assessment that "we do not have an immediate debt crisis." But, as both sides similarly acknowledge, the longer term is a different story. In future decades, it is health care spending in general and Medicare in particular that is at the root of the problem. (That the U.S. also badly needs more tax revenue is a discussion for another time.) But with their plan to privatize the system that currently provides coverage for almost 50 million Americans, Republicans have almost every trend completely backwards. After all, traditional government-run Medicare is not only less expensive than analogous private insurance, its per capita costs have been rising much slower than private premiums for decades. And as it turns out, over just the last few years projected Medicare costs have dropped rapidly, suggesting the future may not be as dire as feared.
As Sarah Kliff reported in the Washington Post ("Want to debate Medicare costs? You need to see this chart first") on Friday, that's the clear implication of the chart above from the new Economic Report of the president. In a nutshell, the chart shows the trajectory for Medicare spending as a percentage of the American economy if the program grows at the much slower rates since 2009 compared to the much higher earlier projections. In February, the New York Times' Eduardo Porter explained:
Earlier this month, the Congressional Budget Office said that by 2020 Medicare spending would be $126 billion less than it predicted three years ago. Spending over the coming decade, it added, would be $143 billion less than it forecast just last August.All told, the CBO now predicts that total Medicare spending for the decade between 2010 and 2020 will be $511 billion less than the agency estimated just three years ago. (In the 2012 fiscal year, Medicare spending per beneficiary grew just 0.4 percent.) "If that cost growth persists, it could make all the difference for Medicare," Kliff pointed out. "The entitlement program would, by 2085, make up 4 percent of the economy instead of the previously projected 7 percent." To see the next four charts, continue reading below the fold.
But whether or not the much slower growth rate in U.S. health care spending persists is, as Ezra Klein aptly put it, "the $2.7 trillion question." To be sure, Americans of all ages have deferred health care due to the recession, a trend that could likely prove temporary. But as the Post and the Times documented, recent cost-saving changes in the ways the government and insurers are already compensating hospitals and physicians will accelerate as a result of the Affordable Care Act.
If the recent slowdown in cost growth were to become permanent, Kliff stressed, it "could completely reorient the typical Washington discussion of Medicare as a budget-buster." Still, Jared Bernstein warned, "We're not going from unsustainable to sustainable." Especially if growth in Medicare spending were to return to the higher levels previous forecast by the CBO. As Ezra Klein explained the meaning of the graphs above:
What these three charts tell you is simple: It's all about health care. Spending on Social Security is expected to rise, but not particularly quickly. Spending on everything else is actually falling. It's health care that contains most all of our future deficit problems. And the situation is even worse than it looks on this graph: Private health spending is racing upwards even faster than public health spending, so the problem the federal government is showing in its budget projections is mirrored on the budgets of every family and business that purchases health insurance.Klein's warning that "private health spending is racing upwards even faster than public health spending" is especially true for Medicare. While there is heated debate about the size of the gap, there is little doubt that the administrative overhead of government-run Medicare is significantly lower than that of private insurers. That is also true of the private Medicare Advantage programs currently used by about 20 percent of beneficiaries. As it turns out, Medicare Advantage policies on average not only feature higher administrative costs, but cost the government much more in monthly premiums than the traditional "public option" Medicare. As Klein explained two years ago:
The Medicare Advantage program, which invited private insurers to offer managed-care options to Medicare beneficiaries, was expected to save money, but it ended up costing about 120 percent of what Medicare costs.In 2011, Nobel Prize-winning economist Paul Krugman turned to data from the Centers on Medicare and Medicaid Services to illustrate the comparative cost-savings to the United States Treasury.
"Medicare actually does a better job of controlling costs than private insurers—not remotely good enough, but better," Krugman explained. As for the implications of shifting American seniors into the private insurance market on Uncle Sam's nickel:
If Medicare costs had risen as fast as private insurance premiums, it would cost around 40 percent more than it does. If private insurers had done as well as Medicare at controlling costs, insurance would be a lot cheaper.It's also exactly what Republicans propose to do in their fiscal year 2014 budget proposal unveiled last week by House Budget Committee Chairman Paul Ryan.
It's a mystery why anyone claims that shifting more people into private insurance is a good idea. Actually, no, it isn't a mystery; it's an outrage.
In 2011 and again in 2012, 98 percent of Republicans in Congress voted for the Ryan budget and its scheme to privatize Medicare. But while Ryan has moved from a pure voucher scheme that would eliminate traditional Medicare altogether to a "premium support" that would keep public Medicare as one option in competition with private insurers, the results differ only in degree. As private insurers deny coverage, jack up premiums and cherry-pick healthier customers, the value of the premium support will prove insufficient and dramatically shift health costs to seniors.
Beginning in 2023, the guaranteed Medicare benefit would be transformed into a government-financed "premium support" system. Seniors currently under the age of 55 could use their government contribution to purchase insurance from an exchange of private plans or—unlike Ryan's original budget—traditional fee-for-service Medicare...
But the budget does not take sufficient precautions to prevent insurers from cherry-picking the healthiest beneficiaries from traditional Medicare and leaving sicker applicants to the government. As a result, traditional Medicare costs could skyrocket, forcing even more seniors out of the government program. The budget also adopts a per capita cost cap of GDP growth plus 0.5 percent, without specifying how it would enforce it. This makes it likely that the cap would limit the government contribution provided to beneficiaries and since the proposed growth rate is much slower than the projected growth in health care costs, CBO estimates that new beneficiaries could pay up to $2,200 more by 2030 and up to $8,000 more by 2050.
Despite Ryan's claims that his theory of "competitive bidding" by private insurers will magically reduce Medicare costs per beneficiary, there is no real world test case to substantiate it. But as the baby boomers start to retire, Medicare's vital role in reducing poverty among the elderly is beyond question.
As the fifth and final chart above shows, it's not just Social Security that helps keep millions of American seniors out of poverty. Despite the dire warnings from Republicans about the 1965 legislation creating it (including Ronald Reagan, who lamented "one of these days, you and I, are going to spend our sunset years telling our children and our children's children what it once was like in America, when men were free"), Medicare has literally helped transform lives. Before Medicare, half of seniors had no health insurance at all, a crisis which has been virtually eliminated. And the poverty rate for Americans 65 and older was cut in half in fewer than 10 years. Far and away the poorest age group in 1959, the elderly saw their poverty rates plummet from 35 percent to 9 percent by 2010.
All of which is why, even with his willingness to cut $400 billion from Medicare over the next decade, President Obama wants to "mend it, not end it." Building on the success of government-run Medicare, Obamacare expands preventive services for beneficiaries while reforming the fee-for-service system that give physicians and hospitals perverse incentives to order more office visits, often unnecessary tests and costly (and even dangerous) readmissions. And to further control costs when they exceed yearly targets, the Independent Payment Advisory Board (IPAB) can make recommendations Congress can override.
Needless to say, Paul Ryan's new GOP budget wants to repeal all of it. His privatization plan, he insists, "strips unaccountable Washington bureaucrats of their rationing power." Responding to charges that his voucherization of Medicare will inevitably lead to rationing, Ryan argues:
"Rationing happens today! The question is who will do it? The government? Or you, your doctor and your family?"Of course, the real culprit is the very private insurance market Republicans want to put in charge of Medicare. And as the five charts above show, that won't be a pretty picture.