Skip to main content

As the Congressional "super committee" approaches its deadline to deliver $1.5 trillion in debt reduction over the next decade, the best plan may well be doing nothing.  That is, absent any action by Congress, the Bush tax cuts extended in December will expire as of January 2013 and so produce roughly $4 trillion over the ensuing 10 years.  That's a trillion more than the $3 trillion package of spending cuts and tax increases advocated by committee Democrats and nearly double the total produced by GOP panelists' heavy budget ax and magical tax cuts.

Nevertheless, the debt super committee this week is instead being urged to target Medicare both by raising the eligibility age to 67 and by adding a voucher option enabling beneficiaries to purchase private insurance.  And that would be a trap.  After all, Republicans remain determined to repeal the Affordable Care Act that would make it possible for 65 and 66 year olds to buy insurance in the private market.  And the Rivlin plan to retain single payer Medicare as a public option wouldn't prevent the shifting the burden of health care costs onto elderly Americans.

Over the past two days, the bipartisan debt committee has heard from Alan Simpson and Erskine Bowles, the co-chairs of President Obama's deficit reduction commission, and Pete Domenici and Alice Rivlin, who authored their debt reduction plan.  As Simspon (who previously compared Social Security to a "milk cow with 310 million tits") made clear with his comment that a recent AARP advertisement was "the most disgusting ad I've ever seen," the Medicare program serving 46 million American seniors needed to be on the chopping block.  His co-chair Bowles explained how:

"As I have thought about it...under the Affordable Health Care Act we provide subsidies for people who have really chronic illnesses and people who have limited incomes so they can afford health care insurance in the private sector," Bowles told the panel during an exchange with Sen. John Kerry (D-MA). "And that didn't exist before the Affordable Health Care Act. That means that people 65, 66, 67 will still be able to get health care insurance. So as I think about it I could support raising the health care age for Medicare since we have other coverage available under the Affordable Health Care Act."

Of course, there are a few problems with Bowles' scenario.

For starters, every Republican "jobs plan" of the past two years and every Republican presidential candidate has called for the repeal of the Affordable Care Act.  The dreaded Obamacare doesn't merely enable 32 million people to gain health insurance, but prevents insurers from using pre-existing conditions or lifetime payout caps from refusing to provide coverage to anyone.  If the GOP is successful in Congress, in the White House and in the Courts, Bowles' 65 and 66 year olds would find themselves out of luck.

Just as ominous, as the Center on Budget and Policy Priorities found in an August analysis (see chart above), "Raising Medicare's Eligibility Age Would Increase Overall Health Spending and Shift Costs to Seniors, States, and Employers."

While this proposal would save the federal government money, it would do so by shifting costs to most of the 65- and 66-year-olds who would lose Medicare coverage, to employers that provide health coverage for their retirees, to Medicare beneficiaries, to younger people who buy insurance through the new health insurance exchanges, and to states.

The principal study of the effects of raising the Medicare eligibility age, by the Kaiser Family Foundation, estimates that its increased state and private-sector costs would be twice as large as the net federal savings.  If the proposal were fully in effect in 2014, Kaiser estimates, it would generate $5.7 billion in net federal savings but $11.4 billion in higher health care costs to individuals, employers, and states.

That Kaiser study found that if policymakers raised the Medicare eligibility age by two years, "65- and 66-year-olds would face higher out-of-pocket health care costs, on average.  Two-thirds of this group -- 3.3 million people -- would face an average of $2,200 more each year in premiums and cost-sharing charges."

Earlier this year, Nobel Prize-winning economist Paul Krugman was among those explaining why proposals to raise the Medicare age or to convert the system into a voucher program would inevitably lead to higher costs and rationing for American seniors.  In June, Krugman summed up the dynamic with a single chart:

As Krugman explained,

The larger point is that we don't have a Medicare problem, we have a health care cost problem. And Medicare actually does a better job of controlling costs than private insurers -- not remotely good enough, but better...

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.

Back in March, Ezra Klein of the Washington Post made much the same point.  "The private health-insurance market has exacerbated cost growth in Medicare," he corrected noted, adding, "Medicare's costs have grown more slowly than private health insurance and Medicare's premiums are about 20 percent lower than private health-care insurance."  And that gap has grown even more pronounced in recent years:

Klein recounted the sad history of Republicans' recent efforts to privatize the delivery of Medicare benefits:

What they've got in mind already exists in Medicare. "Our premium-support plan is modeled after the Medicare Part D prescription-drug program," Paul Ryan (R-Wis.) told me. But Part D hasn't controlled costs. Instead, premiums have risen by 57 percent since 2006, and the program is expected to see nearly 10 percent growth in annual costs over the next decade.

Moreover, this isn't the first time we've tried to let private insurers into Medicare to work their magic. 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.

(Despite Paul Ryan's bogus claim that "Obamacare itself that ends Medicare as we know it" by cutting the Medicare Advantage program, Ryan's budget includes the very same reductions.)

But you don't have to take Ezra Klein's word for it that "the GOP outsources Medicare to private insurers and gives senior citizens checks that cover less and less of the cost of insurance every year."  In words and pictures, the nonpartisan Congressional Budget Office issued the same dire warning.

By leaving beneficiaries at the whim of private insurers whose policies cost more and are padded by substantially higher overhead, and by capping the value of their vouchers, Ryan's budget proposal would produce dire consequences. As the CBO concluded in April, "A typical beneficiary would spend more for health care under the proposal." Make that, as Director Douglas Elmendorf explained, a lot more.

Under the [Ryan] proposal, most elderly people who would be entitled to premium support payments would pay more for their health care than they would pay under the current Medicare system. For a typical 65-year-old with average health spending enrolled in a plan with benefits similar to those currently provided by Medicare, CBO estimated the beneficiary's spending on premiums and out-of-pocket expenditures as a share of a benchmark amount: what total health care spending would be if a private insurer covered the beneficiary. By 2030, the beneficiary's share would be 68 percent of that benchmark under the proposal, 25 percent under the extended-baseline scenario, and 30 percent under the alternative fiscal scenario.

It's no wonder President Obama responded in April by promising, "I will not allow Medicare to become a voucher program that leaves seniors at the mercy of the insurance industry, with a shrinking benefit to pay for rising costs."]

In Alice Rivlin's defense, by keeping the traditional single-payer government Medicare option in place, her voucher program differs in an important respect from Paul Ryan's complete privatization crusade.  Ironically, the theory behind the Rivlin plan Ryan originally endorsed sounds a lot like the Affordable Care Act he and his Republican Party now want to destroy.  As Ezra Klein summed it up in December:

Under the Ryan-Rivlin plan, the current Medicare program is completely dissolved and replaced by a new Medicare program that "would provide a payment - based on what the average annual per-capita expenditure is in 2021 - to purchase health insurance." You'd get the health insurance from a "Medicare Exchange", and "health plans which choose to participate in the Medicare Exchange must agree to offer insurance to all Medicare beneficiaries, thereby preventing cherry picking and ensuring that Medicare's sickest and highest cost beneficiaries receive coverage."

Sound familiar?

In her interview with Klein in March, Rivlin (who also supports the Affordable Care Act passed last year) concurred with his assessment:

"The objective," Rivlin told me, "is to get genuine competition on an organized exchange among comprehensive health plans so they will compete and arguably produce better health care for less money."

What's odd about the right's embrace of Ryan-Rivlin is that the plan basically turns Medicare into the Affordable Care Act. It's the same idea -- regulated exchanges offering certified insurance products populated by subsidized buyers. If Ryan-Rivlin will unleash ferocious innovation that holds costs down, then so too should the Affordable Care Act. So at the end of our conversation, I asked Rivlin, who supported PPACA, if I was missing something. She laughed. "I keep talking to Paul and trying to convince him of that," she said. "But even if he agreed with me, he couldn't say so."

With its comparatively miniscule administrative overhead, Medicare is already cheaper than private insurance.  But if Ryan's model of the elderly purchasing coverage from an exchange of private insurers will make it cheaper still, then the Republicans' reviled Obamacare would have precisely the same effect.  "If you believe this logic," Klein concluded, "the Affordable Care Act is a great bill that will save much more money than CBO currently assumes." [Italics his.]  (Instead, Ryan's Young Guns co-author Eric Cantor called the CBO's deficit-cutting estimates for the Affordable Care Act "budget gimmickry.")

Of course, the only reliable cost savings from the Ryan-Rivlin plan come not from market competition, but from the cap on the growth in the value of those vouchers.  Again, Klein from earlier this year:

Ryan-Rivlin only survives if it holds cost growth to the rate of GDP growth plus one percentage point. If it doesn't, then the subsidies offered by Ryan-Rivlin quickly become inadequate -- and no one is going to allow Medicare to stop paying for the health-care costs of seniors.

Well, that it in essence is exactly what Ryan's amen corner is proposing.  As the chart above shows, the rising cost of private health insurance has far outstripped U.S. economic growth.  Last February, Ryan admitted as much, protesting that:

"Rationing happens today! The question is who will do it? The government? Or you, your doctor and your family?"

Given Republican orthodoxy, it's no surprise that Ryan left out the real culprit - the private insurance market.

Which is why, tempting as the savings from raising the Medicare eligibility age or turning to a voucher system may be to some, that route to deficit reduction is a trap.

* Crossposted at Perrspectives *

EMAIL TO A FRIEND X
Your Email has been sent.
You must add at least one tag to this diary before publishing it.

Add keywords that describe this diary. Separate multiple keywords with commas.
Tagging tips - Search For Tags - Browse For Tags

?

More Tagging tips:

A tag is a way to search for this diary. If someone is searching for "Barack Obama," is this a diary they'd be trying to find?

Use a person's full name, without any title. Senator Obama may become President Obama, and Michelle Obama might run for office.

If your diary covers an election or elected official, use election tags, which are generally the state abbreviation followed by the office. CA-01 is the first district House seat. CA-Sen covers both senate races. NY-GOV covers the New York governor's race.

Tags do not compound: that is, "education reform" is a completely different tag from "education". A tag like "reform" alone is probably not meaningful.

Consider if one or more of these tags fits your diary: Civil Rights, Community, Congress, Culture, Economy, Education, Elections, Energy, Environment, Health Care, International, Labor, Law, Media, Meta, National Security, Science, Transportation, or White House. If your diary is specific to a state, consider adding the state (California, Texas, etc). Keep in mind, though, that there are many wonderful and important diaries that don't fit in any of these tags. Don't worry if yours doesn't.

You can add a private note to this diary when hotlisting it:
Are you sure you want to remove this diary from your hotlist?
Are you sure you want to remove your recommendation? You can only recommend a diary once, so you will not be able to re-recommend it afterwards.
Rescue this diary, and add a note:
Are you sure you want to remove this diary from Rescue?
Choose where to republish this diary. The diary will be added to the queue for that group. Publish it from the queue to make it appear.

You must be a member of a group to use this feature.

Add a quick update to your diary without changing the diary itself:
Are you sure you want to remove this diary?
(The diary will be removed from the site and returned to your drafts for further editing.)
(The diary will be removed.)
Are you sure you want to save these changes to the published diary?

Comment Preferences

Subscribe or Donate to support Daily Kos.

Click here for the mobile view of the site