The Coming Battle for Medicare

The Coming Battle for Medicare


Republican Vice Presidential pick Paul Ryan isn’t the only one Democrats are piling on this week. The knives have come out for Senator Ron Wyden, the Oregon Democrat.

I guess that isn’t a surprise. If Ron Wyden is right on Medicare then so are Paul Ryan and Mitt Romney.

The fundamental problem here is that the Democrats have decided that their best path to victory in the November elections is to say that the Republicans want to destroy Medicare as we know it and that the Democrats can preserve it.

The truth is that no one can preserve Medicare as we know it. There isn’t a prayer that your father’s Medicare will be around in 10 years. There is a legitimate policy debate going on about the direction we will have to go with it.

There is just plain going to be less money to spend on senior health care than there would have been if we let the program continue on its present unsustainable track. Health care providers and patients are going to have less money.

The question is who will control that money.

Conservatives generally want consumers to be in the driver’s seat—give seniors a defined contribution and let them decide on which health plan, and on which health plan’s approach to health care management, they want to spend it.

Progressives generally want to continue the defined benefit approach—guarantee everyone a benefit and use the regulatory power of government to make the dollars stretch to pay for it.

Both directions would lead to a Medicare program that looks very different than the open-ended entitlement we have today—one that because of its open-ended nature and the huge number of baby boomers about to retire will bankrupt us.

Late last year, Ron Wyden and Paul Ryan came along with a compromise—I will suggest an elegant political compromise.

First, they both agreed the current system is unsustainable—perhaps Ron Wyden’s real sin in an election-year when the party-line is that Medicare as we know it can be preserved and Republicans need to be defeated because they will kill it as we know it.

Then they found a way to craft a plan that took key elements from both the Democrat’s defined benefit and the Republicans defined contribution philosophy. For the details, see my post, Paul Ryan and Ron Wyden Blow the Medicare Reform Debate Wide Open!

At a time most Americans are upset that Republicans and Democrats can’t find a way to solve the big problems we face, Wyden and Ryan did just that on Medicare—they found a way to preserve the defined benefit baseline Medicare entitlement Democrats are insisting on while giving Republicans the consumer-centered defined contribution approach they want.

It was really elegant policy. But also inconvenient policy because Democrats had already decided they were going to make this election about their preserving Medicare while charging Republicans want to kill it.

So, with Ryan now the apparent Republican Vice Presidential nominee, the imperative to target Ryan’s approach to Medicare reform becomes all the better target and with him Wyden. Because if Wyden is right then the Democrats are wrong—or worse not telling the truth about Medicare.

That may be a necessary political strategy for Democrats during this election season, but my money is still on Wyden.

After November comes January.

My bet is that there are likely only two outcomes come January:

  1. Romney wins the White House and with it the Republicans capture the Senate and hold the House. In this case, the Wyden-Ryan Medicare reform proposal will be on top of the new administration’s agenda and Ron Wyden will be in the catbird seat. Republicans saw what happened to Democrats when they passed health care reform without a single Republican supporter. Republicans will be willing to round a lot of edges to keep Wyden on board and perhaps get a couple more Democrats.
  2. Obama wins but the Republicans take the Senate and keep the House. While a Republican victory in the Senate isn’t a certainty, the odds look a lot better than not. Now, either Republicans and Democrats compromise on the key issues or the political gridlock, and financial uncertainty that accompanies it, continues doing lots of damage to the economy. How will both sides eventually compromise over the key Medicare issue? There is only one path to Medicare compromise on the table—Wyden-Ryan.

Ron Wyden’s solo effort to actually find common ground and fix things now puts him in a very lonely and uncomfortable spot—until about the first Wednesday in November.

Maybe actually trying to be bipartisan and telling the truth will have a payoff after all.

Robert Laszweski has been a fixture in Washington health policy circles for the better part of three decades. He currently serves as the president of Health Policy and Strategy Associates of Alexandria, Virginia. Before forming HPSA in 1992, Robert served as the COO, Group Markets, for the Liberty Mutual Insurance Company. You can read more of his thoughtful analysis of healthcare industry trends at The Health Policy and Marketplace Blog, where this post first appeared.

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68 Comments on "The Coming Battle for Medicare"

Aug 13, 2012

This is Within-the-Beltway, Gilded-Age resurgent, Big Lie. We do have choices: stop fight unnecessary and unfunded wars, tax the rich and corporations at Eisenhower-era tax rates, reinvest in our infrastructure, take care of our young, our infirm and our elderly.

Aug 13, 2012

Wow, brimcmike, you’ve got a bad case of liberal talking point palilalia.

Stopping the wars and confiscating 100% of the wealth of the private wealth in this country would not even fix the fiscal cliff we’re headed for. Research that for a while and then attempt to make an intelligent comment.

Craig "Quack" Vickstrom, M.D.
Aug 14, 2012

Not 100%, just 90%. It worked for Ike.

Aug 14, 2012

No, it didn’t. Nominal tax rates are not the same as effective tax rates. The 50s tax rates included enormous provisions for deductions and allowed for tax shelters. Most of these were eliminated in the Reagan tax reform. The actual effective rates were not greater than today’s and if you look at tax revenue as a % of GDP it was around 18%, about the same as it has always been. This was also at a time before Medicare, Medicaid and the explosion in Social Security spending so that the Federal budget was less than $100 billion compared to over $3 trillion today. Increasing taxes will raise more revenue in the short-term but it will not come near to balancing today’s budget and it will not solve the long term entitlements problem.

Craig "Quack" Vickstrom, M.D.
Aug 14, 2012

Cut the military budget by 90%. Take the cap off Social Security taxes, as well as benefits. Make corporate tax rates and investment income tax rates equal to payroll tax rates. Make income tax (payroll, investment and corporate) heavily progressive. Maybe not has progressive as Ike’s but much more so than today. Nationalize health care, eliminate insurance companies, seize their assets. Ration the health care along standards of need, not standards of greed we currently have. Problem solved.

Aug 14, 2012


Aug 14, 2012

You need to go read up on Clemente Atlee, and the vast nationalization of multiple sectors of the UK economy following WW2, along with the progressive taxation they imposed. Those policies were a key part in the decline of the UK economy.

As to your comment about making corporate tax rates equal to payroll tax rates. Do you mean to lower them to the current payroll tax rate of 12.4%? Or did you mean to say raise them? Current US corporate tax rates are one of the highest in the world.

You need to go study some economics first. You may have an M.D., but your knowledge of econ is based upon a seeming hatred/envy of those you consider well off.

Pat S
Aug 13, 2012

Although Ryan-Wyden pays lip service to the preservation of conventional Medicare as an option, that option would be of increasingly little worth for two reasons.

First, conventional Medicare would be the most attractive option for people with high medical costs, as it is now. This would tend to drive the cost of true Medicare up relative to other programs, since without a very elaborate system of actuarial analysis private insurers would tend to seek and draw lower utilizers.

Second, the plan is structured to base its voucher payments on the cost of low cost programs, which would mean that users of conventional Medicare — or of any other insurance program providing relatively comprehensive benefits for truly sick people — would gradually pull away over time, requiring a greater and greater enrollee out of pocket payment above the level of the vouchers.

The only way to make a voucher program work would be to either use very elaborate — and costly — underwriting to set the worth of vouchers based on potential need of the insured, or to develop systems to set both the price of insurance and the price of health care services so that all insurance programs public and private start on an even footing and cherry picking is prevented.

The second approach is the approach used by many European and the Japanese systems, and in fact does — unlike Ryan-Wyden — represent a true fusion between the desires of the right and the left, but requires far too much supervision and control for the taste of the current right in the US. The fact that it works extremely well and results in health care systems that not only provide better health care, as measured by outcomes, than the US, but also cost anywhere from 25% to 60% of the costs of US health care, potentially putting an end to the entire US health care crisis in one go, does not seem to impress most of those paying lip service to the idea of repairing not only Medicare and Medicaid but also the rapidly imploding private insurance system as well, but who seem to be most intent on gradually creating a system to ration health care by price to an even greater extent than we have now.

Barry Carol
Aug 14, 2012

I generally agree with Pat’s take on this.

We should remember that in any given year, the healthiest 50% of Medicare beneficiaries account for only 4% of program’s costs or less than $1,000 for each of those 24 million people while Medicare overall spends roughly $10,000 per member annually. I think the Medicare program would cost even more if healthy people were allowed to take their voucher, find a low cost insurance plan and pocket the difference. At the same time, most of those with high healthcare costs would adverse select into standard Medicare.

People who want something different from standard Medicare can already choose a Medicare Advantage plan and some 26% of them have done so. Medicare Advantage insurers receive risk adjustment payments but I’m told that it generally takes about 12-24 months from the time a member ages in to Medicare for the risk adjustment to begin to reflect the member’s true health status and it is never completely accurate in any case. While the risk adjustment mechanism gets decent marks from insurers, in the end, it overpays for the healthy and underpays for the sick. As an aside, I was surprised to learn on Humana’s most recent earnings conference call that the average risk score for its Medicare Advantage population is 0.65 with average risk for the total Medicare population scored at 1.0.

I think we would be better served if we put our efforts into trying to change the culture of how medicine is practiced. Our culture tends to favor aggressive interventions even when they are unlikely to do much good. I think doctors could do a better job of honestly describing the options available to patients and families and the quality of life implications of each. Patients, for their part, should at least discuss with spouses, adult children and other family members what care they want and don’t want in an end of life situation, especially Alzheimer’s, dementia and advanced cancer. Sensible tort reform could reduce defensive medicine and I think there is more that could be done to combat fraud. Moving away from the fee for service payment model in favor of bundled payments for surgical procedures and capitation where feasible would also be helpful.

I don’t think the Republicans’ faith in the private insurance marketplace will work here. Democrats, for their part, don’t seem to know how to do anything other than squeeze provider payments which can only be pushed so far before more providers drop out of the program. The U.S. is likely to always have the most expensive healthcare system in the world but there is plenty of room for improvement. Much of the leadership, though, probably has to come from doctors and hospitals.

Aug 14, 2012

Really folks, how much more of disingenuous, insincere, and plain fraudulent dialogue by both sides of the failed aisles of this political system can you tolerate before the reverse peristalsis of projectile vomiting will overcome those just fed up? Medicare has passed the zenith of it’s potential, and now is just a bloated beast of excess access for minimal gain.

Again, we are seeing what the entitled narcissistic expectations of the boomers will force on the rest of America and just bankrupt us all financially, politically, and spiritually until the system collapses under it’s bloated weight. Are any of you just shouting out for more of the same paying attention to what is going on in Greece, Spain, and other European cultures of “gimme that, it’s mine”?

Blind faith, wow, it truly is sensory deprivation at its finest!

Aug 14, 2012

Just read this at the Washington Post, so this is the future for America?

“but, we’re not Greece” moans the masses behind their political bosses.

Yeah, we’re just as much like Rome too. See the smoke yet?!

Aug 14, 2012

Beautifully and thoughtfully put. I couldn’t put it better. Here is how the poet in me puts it.

Don’t Let Them Mediscare You

The first and great commandment is. Don’t let them scare you.

Elmer Davis (1890-1958), But We Were Born Free (1954). Elmer Davis was a well-known news reporter, author, and Director of the United States Office of War Information in World War II and a Peabody Award recipient.

August 14, 2012

Don’t let those Obamacare folk scare you,

No matter how they say it or what they do.

Under Paul Ryan’s most recent proposal,

You’re not headed to the Medicare disposal.

The proposal won’t affect you if you’re over fifty five.

You can stay on Medicare as long as you’re alive.

You can choose to remain on traditional Medicare,

You can choose a cheaper private plan if you dare.

Don’t believe that nasty unfounded riff,

That Ryan pushes Grandma off the cliff.

Or that a price support voucher

Is the work of a political poacher

Ryan’s proposal repeals the health care law,

Which sticks in many a skeptical senior’s craw.

Obamacare cuts $710 billion from Medicare.

That already places Medicare in disrepair.

Under Obamacare, Medicare as you knew it,

Will soon be gone no matter how you view it.

The Ryan plan restores the $710 billion cuts,

It proposes the same Medicare growth rate,

As Obamacare says it would choose to inflate.

It switches willing seniors on vouchers, no if ands and buts.

And it issues block grants to states to administer Medicaid,

The states can then administer their own budgetary bandaid.

Don’t let them scare you.

With stories apocalyptic

Remember the alternative.

A bankruptcy nightmare.

For Medicare.

Tweet: The Ryan budget plan is to head off Medicare bankruptcy by offering either traditional Medicare or private premium support voucher options.

Aug 14, 2012

You can’t just “choose to remain on traditional Medicare”, Dr. Reece. You’ll have to pay the difference between that and the second cheapest plan, which is going to be increasingly more money.

And since lots of seniors are on Medicaid as well, or will soon be, those block grants are certain to affect them in a nasty way.

And why is this supposed to start in 10 years and not 10 months? Does it have anything to do with appeasing voters?

Is the new modus operandi now that one party passes one law and then the other party repeals it and passes its own law and then the first party repeals that and passes something else, all of which is scheduled for doomsday in the future and in the interim we do nothing?

Bill Springer
Aug 14, 2012

Just as we criticize public employee unions for extracting outrageous fringe benefit and retirement packages from our elected officials, we should aim the same type of barrage at CMS for what it has done with Medicare. Medicare was intended to provide health care for the elderly at a time when many were unable to afford basic care. How did it now evolve into the massive pay for everything program? We need to get back to what it was intended to do, namely, provide reasonable care for the elderly, not give them carte blanche for anything that the FDA has not rejected.

Aug 14, 2012

Bill, when part of ACA “reasonable” was living will consultation, Repugs screamed “DEATH PANELS!”. Until we get away from extreme political base tribal camps there will be no “reasonable”. Reassurance of elderly that “their” Medicare won’t change will only carve out younger, voucher coverage groups as targets of scare-care tactics.

Don’t forget it was GOP who vowed to only defeat Obama, not work to “resonable” long term solutions that would give political cover to both sides.

Aug 14, 2012

“How did it now evolve into the massive pay for everything program? … give them carte blanche for anything that the FDA has not rejected.”

Grossly overstated.

Bill Springer
Aug 14, 2012

BobbyG, you might feel otherwise about gross exaggeration if you see the number of terminal elderly patients put on ventilators without “DNR” orders. Patients and families don’t think twice about the cost of care when they’re allowed to play with “house money”.

Aug 14, 2012

Look, I just recently finished up YEARS of next-of-kin POA/Legal Guardian duties for my late parents, both of who had Medicare — as well as VA, and Tricare. None of which were “carte blanche.” Moreover, I shelled out about $300k cash across the 4 years of my Ma’s long-term care. My Dad was in LTC with dementia from 1991 ’til he died in 2008. His disabled WWII combat vet VA coverage, while adequate, was not a blank check.

None of which is to deny that there are systemic problems. Just that gross overstatements don’t add anything useful to the debate.

Barry Carol
Aug 14, 2012

“And why is this supposed to start in 10 years and not 10 months? Does it have anything to do with appeasing voters?”

Margalit –

People who are on Medicare now or will be going on it within 10 years are counting on current system as part of their retirement planning. Even Ryan recognizes that. Younger people, by contrast, have time to adjust to and plan for a modified system. As I noted above, though, a hybrid system for the under 55 population won’t work because the sicker people will adverse select into standard Medicare. A voucher approach would have to apply across the board and insurers would need risk adjustment payments like they get now under Medicare Advantage.

That all said, the important thing to understand about Ryan is that he’s a supply sider as opposed to a deficit hawk. His proposal wouldn’t balance the budget until 2040 even if his aggressive economic growth assumptions materialize which they probably won’t. His focus is mainly on tax cuts for “job creators” (meaning the wealthy) in order to stimulate economic growth. Eliminating taxes on interest, dividends and capital gains is outrageous on its face and I say that as one who would benefit materially from that if it happened because much of my income in retirement is from investments. I thought we got taxation right in 1986 when the top marginal income tax rate was 28% and all income including capital gains and dividends was taxed at that maximum rate.

The Ryan and (probably) Romney economic program are losers because both will be seen, correctly I think, as grossly unfair to the middle class. At the same time, if Obama “wins ugly,” he will alienate the other side who then won’t cooperate with him and he won’t have a mandate to do anything other than raise taxes on the wealthy unless he puts forth a viable alternative plan, campaigns for it and wins.

Aug 14, 2012

If as Bob writes above this “elegant” compromise does nothing more than put Consumers in the driver seat, what is there to prepare for? Do people need over a decade to ponder whether they should stay in traditional Medicare or opt for one of those spiffy private plans that will end up saving them boatloads of money?

There is no integrity left anywhere….

Aug 14, 2012


Medicare spending has already slowed, thanks to the ACA.

As Peter Orszag has pointed out Growth of Medicare spending has already
slowed to an affordable rate. WE have 2 1/2 years of data.
Hospitals, in particular, are anticipating the new payment systems and are cutting costs, thus submitting lower bills to Medicare.

I quote Orszag in my most recent THCB post here

Republicans have already lost this war. The law passed, and it’s beginning to work.

And the parts oif the ACA that will reduce spending further haven’t even begun to kick in:

–Accoutnable Care Organizations,
–Patietns receiving care at community health centers (ACA doubles capacity)
rather than ERs,
— patient homes that keep patients out ot hospitals
–Many ways of paying for quality, not fee for service
–Reduced fees for overvalued services, much as Medicare has already
reduced fees for CT scans and MRIs done outside hostpials;
–Medicare will be shaving annual inflation increases in payments to hospitals
and nursing homes by 1% a year for 10 years–this is a major reason why
hospitals are already tigheting their betls, reducing preventable readmissions, etc.

Meanwhile, with Ryan on the ticket it appears more and more likely that Obama
will enjoy a landslide victory.

If so, the coattail effect for Democrats running for Congress will be significant.

Once in office, in his second term, OIbama is going to veto anything that shifts
costs to Medicare beneficiaires

Finally,American voters are very, very tried of hearing conservatives insist on
continuing to debate health care reform.The legislation passed. Let’s see
how it works.

In the meantime, voters want to hear how Republicans will create jobs for
teachers, firemen, construction workers repairing infracture. We need public sector jobs.

Obama and Democrats know that tax rates for the wealthiest 5% are at historic lows. They will increase those taxes, take a look at inheritance taxes,
corporate tax loopholes, etc. .

Republican candidates who continue to fight the last war by going on and on about turning Medicare into a defined contribution plan will be punished at the

Aug 14, 2012

“Republican candidates who continue to fight the last war by going on and on about turning Medicare into a defined contribution plan will be punished at the

Really. Like your political agenda is going to save America. Wow, the rhetoric between these two parties is so pathetic. The status quo ain’t gonna work people, and pandering to a clueless, dependent base is not going to drive that 30% independent voting block to reflexively go with either party just because of scare tactics.

Entitlements are not answers, just delays to inevitabilities. You want to live indefinitely, yet can’t handle the truth. Again, per MASH episode with Ron Howard and Hawkeye’s friend dying on the table, “rule #1, people die, and rule #2, doctors can’t change rule 1”.

But for the sake of political gain, let’s sell the public said rules can be excepted. I don’t know who is worse, the rich guy who wants another title, or a political thug who will demean and defame while projecting his own ugliness onto his opponent.

Ugly election tactics. Yeah, at who’s expense in November? Oh yeah, the public’s. Wait until we watch Democrat PAC ads showing Ryan impersonators mowing down people in hospital corridors.

Sounds stupid and obscene? Welcome to the crossfire of politics!

Aug 14, 2012

Why don’t we give back to each person all the money they have put into Medicare with interest and then you are on your own. People get way too much out of this program in comparison to what they have put in it.
Or cut off the benefits once a person has used up all they have contributed.

Aug 15, 2012

…give back to each person all the money they have put into Medicare with interest…

Splendid idea except that Medicare, like Social Security, is a pay as you go plan. Since when is any federal or state program into the business of giving back anything? Last I looked both state and federal elected officials are in the business of collecting money and spending it right away. And when there isn’t enough to do what they want done, they borrow on behalf of the electorate — “bonds” they are called.

In other words, the “money they have put into Medicare” is not there any more. It’s gone. Spent. Nothing. Nada. Your suggestion would be clever if it were not so transparently ignorant, unless, of course, you are suggesting ending the program at once and letting everybody sink or swim according to how long they can survive on whatever private assets they may have.

Barry Carol
Aug 15, 2012

Margalit –

While I’m not an insurance expert, I’ll offer my opinion anyway.

I think any private insurance plan would include a limited provider network as is the case with Medicare Advantage plans because that’s one element of their effort to control costs. As I understand the Ryan proposal, insurers would bid in each region and the value of the voucher in that region would be set at the price of the second lowest cost plan. The only potential savings available to a beneficiary would be the difference in cost between the lowest cost plan and the value of the voucher. Beneficiaries could pocket that difference if they chose the lowest cost plan. Those who choose higher cost plans than the value of the voucher would have to pay the difference themselves.

Assuming insurers could not turn anyone down who applies for a policy and can pay any difference between the premium and the value of the voucher, the approach cannot work without risk adjustment payments as some insurers will wind up with sicker members than others. This is how it works it Germany, Switzerland and the Netherlands. If standard Medicare remains an option, it’s a virtual certainty that the sickest patients will choose it (adverse selection) because they will want maximum provider choice especially as it relates to hospitals. Without risk adjustment payments, either standard Medicare will become unaffordable or, if Congress provides for an additional subsidy to cover costs in excess of premiums received, it won’t save any money. Moreover, to the extent that healthy people who choose the lowest cost plan are allowed to pocket the unused portion of the value, the overall program could wind up costing more than the current system of standard Medicare plus Medicare Advantage. I think this proposal has cost overruns and unintended consequences written all over it.

Aug 15, 2012

The Ryan plan for Medicare is extremely gentle, at least on my first reading of it.

Everyone over 65 can stay with Medicare until they die.

Everyone 55 or over today can stay with Medicare until they die.

Therefore, between 2012 and 2022, Medicare spending will grow to about $1.2 trillion a year just on demographics and mild medical inflation.

No one will be on the Ryan plan in 2022, as I understand it.

Between 2022 and 2032, some of today’s elders will still be alive and on traditional Medicare, and most of today’s 55 years olds will be alive and on traditional Medicare.

The number of people on the Ryan plan from 2022 to 2032 will be growing by about 2-3 millon a year, as today;s 55 year olds hit age 65.

This is budget dust, more or less.

Remember that the entire Federal government took in about $2.2 trillion in revenue during 2010. Between 2000 and 2010 there was almost no growth in federal revenues, per David Cay Johnston.

it would certainly seem that a budget crisis will hit America long before the
Ryan plan has any real effect.

Pat S
Aug 15, 2012

“The Ryan plan for Medicare is extremely gentle…”

True. In fact, it is so gentle that it will actually increase the deficit substantially for the first 25 years, according to the CBO analysis — by $6 trillion in ten years, due to the fact that the tax cuts start immediately while the savings are phased in over time. Ryan even concedes that it will increase the deficit for the first 15 years, then says that the tax enhancement from the feverish economic growth he envisions will put the budget in the black.

The main reason for the delays in implementation of the Medicare cuts and some other cuts is that they will result in very substantial increased costs to individuals, and that current retirees and near retirees would largely refuse to tolerate that and use their votes to express their opinions. The hope is that people who are 10 and more years from Medicare will be less interested in the topic and more interested in other things, like tax cuts, and will not be motivated to vote the issue.

However, make no mistake, the Ryan budget will ultimately have a very pronounced impact on the many people, including many seniors, who according to the CBO will have very large (from $2000 to more than $10,000 a year) new out of pocket payments for health care depending on their health status. The budget will also impact many low income people, who will be eliminated from programs like Medicaid, food stamps, housing aid, the earned income credit, and unemployment, as well as many young people who will be eliminated from educational aid and job training programs. All those programs are due to be severely contracted or eliminated long before the onset of the Medicare changes.

Of course, many if not most of Ryan’s fans would say that that is exactly as it should be.

Aug 15, 2012

I think we’re in general agreement on this. Just wanted to point out that in those countries you mentioned, the plans are not allowed to profit on the basic and rather generous package, so there goes another 15% to 20% savings and since the provider prices are uniformly negotiated, there are probably even more savings, compared to the free-for-all contemplated here.

I think Bob Hertz is right too and this “plan” from Mr. Ryan is not really a plan to accomplish anything except the ultimate removal of the social safety net, which is rather flimsy to start with, and a return to the good old gilded days eventually.