Seniors Would Pay Much More Under GOP Medicare Plan: CBO

April 06, 2011

April 6, 2011 — Seniors on average would spend 2 to 3 times as much for healthcare in 2030 as they do now under a Republican plan to transform Medicare from a classic entitlement program to one that gives subsidies to individuals to purchase private health insurance, according to a new analysis from the nonpartisan Congressional Budget Office (CBO).

The CBO analysis, published yesterday, also says that the GOP proposal to cap federal contributions to state Medicaid programs through block grants would probably force states to lower pay for physicians and hospitals, reduce eligibility and benefits, or force beneficiaries to pay more out of pocket.

This dramatic restructuring of the 2 federal healthcare programs, beset by runaway costs, is part of a Republican budget proposal for fiscal 2012 that aims to reduce the federal deficit by $5.8 trillion over 10 years based on current spending policies. Rep. Paul Ryan (R-WI), the chair of the House Budget Committee, contends that the GOP plan will save Medicare and Medicaid from financial collapse.

Democratic politicians use words like "dismantle," "destroy," and "threaten" to describe the impact of the Republican prescription for healthcare, which also calls for repealing core provisions of the new healthcare reform law. Beneath the often supercharged rhetoric is a philosophical split on what responsibilities belong to the federal government and what belongs to states and individual Americans.

Seniors May Need to Save More for Healthcare, Says CBO

Under the Ryan proposal, anyone who turns age 65 beginning in 2022 would choose among competing private health plans that would offer standardized benefits. The government would give those plans a "premium support" payment — called a voucher by some — that would vary with the income and health status of the Medicare beneficiary. The subsidy would be lower for the wealthy and higher for the very sick. Some low-income individuals also would receive a government-funded medical savings account for out-of-pocket expenses. Seniors who entered the current Medicare system before 2022 could remain in it.

Also in 2022, the age of Medicare eligibility would begin to rise by 2 months per year until it reached 67 years by 2033.

In its analysis, the CBO stated that the GOP plan would slow the growth of Medicare spending and eventually send it downward. That bending of the cost curve would happen partly because "most elderly people would pay more for their healthcare than they would under the current Medicare system," the CBO stated. In 2030, what a typical 65-year-old beneficiary would spend in premiums and out-of-pocket expenditures would be 2.3 or 2.7 times higher than if traditional Medicare were in place, depending on the long-range fiscal scenario in use, according to the CBO. That greater burden "would require them to reduce their use of healthcare services, spend less on other goods and services, or save more in advance of retirement."

The CBO cited 2 reasons why the new plan to provide premium subsidies for private insurance will shift more costs to Medicare beneficiaries. For one thing, private health plans would need to charge higher premiums and require more out-of-pocket spending than traditional Medicare because their costs typically are greater, both in terms of administrative expenses and payments to physicians and hospitals. And unlike the government, they want to earn a profit. In addition, the government’s premium support, pegged to increases in the Consumer Price Index and advancing age, would grow more slowly than healthcare costs.

Uwe Reinhardt, PhD, a healthcare economist at Princeton University, said the CBO analysis is on target.

Dr. Uwe Reinhardt

"There will be an ever-widening gap between the voucher and what health plans need to break even," Dr. Reinhardt told Medscape Medical News. "Thewhole risk of healthcare inflation will be shifted from taxpayers to the elderly."

The shifting of risk is where philosophical differences about the role of government come into the discussion.

"As a principle, people in hardship have to be protected, but we’re treating everyone the same," said Michael Leavitt, a former governor of Utah who served as secretary of the Department of Health and Human Services during the George W. Bush administration. "Healthcare is not entirely a taxpayer responsibility."

Michael Leavitt

"We will eventually move toward a model where individuals who have the capacity will have to bear a greater proportion of their healthcare costs," said Leavitt, who now heads a consulting group called Leavitt Partners. "The most compelling evidence for this is that we’re broke."

Access to Care for Medicaid Enrollees Could Worsen

Converting Medicaid into a block-grant program will have equally far-reaching repercussions for patients and clinicians, according to the CBO report.

Medicaid is a program operated by individual states under mostly federal regulations and jointly funded by states and the federal government. Uncle Sam is expected to foot 57% of the cost in fiscal 2012. The states’ share, though smaller, accounts for 12% of their general-fund spending, a rising percentage that is "eating up the capacity to nurture anything else in the state," said Leavitt. That means roads, schools, and law enforcement.

When the economy nosedives and more people become eligible for Medicaid, the federal contribution goes up. However, in the block-grant approach proposed by Republicans, the federal share would be capped except for increases based on general population and price growth, the CBO report notes.

Turning Medicaid into a block-grant program would give states more flexibility to design and manage their individual programs and perhaps stretch their dollars through more efficient patient care. However, such savings would not offset the dramatic reduction in federal support, leaving states with hard choices — raising additional revenue, spending less on other state programs, or shrinking their Medicaid programs. The last choice could entail limiting eligibility, cutting benefits, or reducing payment rates to physicians, hospitals, and nursing homes, according to the CBO.

Because Medicaid rates are already low, further cuts could make healthcare providers less willing to treat Medicaid patients, the agency pointed out. "As a result, Medicaid enrollees could face more limited access to care."

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