During the last election campaign, Tea Party-backed Republicans across the country rode to power on a tidal wave of advertising attacking health care reform as a cut in Medicare. It is. If efficiency programs like the accountable care organizations being formed across the country don’t hold down spending by about $500 billion over the next decade, an Independent Payments Advisory Board would make recommendations for holding growth in Medicare spending to the growth in the domestic economy (GDP) plus one percentage point.
In most years when the economy is humming along, that would be about 4 percent. Over the past decade, health care spending for seniors grew at about 6 to 7 percent — the same as health care spending for the rest of the population. So if the Medicare delivery system reforms don’t work, Congress will either have to adopt the IPAB’s recommendations or institute cuts of its own to ratchet down spending.
This week, President Obama upped the ante to meet his budget deficit reduction targets over the next decade. Medicare spending would be held to GDP plus 0.5 percent, another approximately $300 billion in cuts. About $50 billion would come from eliminating unnecessary errors and hospital re-admissions. The rest was unexplained.
Rep. Paul Ryan’s budget plan, which House Republicans will approve today, does nothing to hold down Medicare spending over the next decade (for anyone 55 or older), and it would repeal health care reform. However, it still counts the projected savings in “Obamacare” since its projected savings are on top of the Congressional Budget Office’s baseline budget, which is based on current law. This is just one of many reasons why Ryan’s proposal has been widely castigated by mainstream economists as flim-flammery (see this report from Macroeconomic Advisers, as mainstream a bunch of economists as you can find. In a note to clients this week, they called the Ryan plan “flawed and contrived.”)
So how do Republicans plan to dramatically reduce Medicare spending in the following decade (the 2020s) for people who are now under 55? He would turn the program over to the insurance industry and give seniors a voucher to buy their plans. The value of the voucher would increase by a rate calculated as the consumer price index plus one percentage point. Since the Federal Reserve Board’s target for inflation is 2 percent, that means Ryan would place the program in a straitjacket of about 3 percent a year — cutting the current medical spending growth rate by more than half. No wonder the CBO projected that within a few years, seniors would be picking up two-thirds of the cost of health care out of their own pockets.
Let’s be honest. This is never going to happen. Republicans, once they’re in power, have no qualms about increasing deficits. We’re in the fix we’re in because they repeatedly cut taxes instead of saving for the future. If the nation simply let the Bush era tax cuts expire at the end of next year, it would eliminate $4 trillion in projected deficits — more than either the president’s or Republican’s plan.
So why do I say the Medicare formula in Ryan’s plan will never happen? Half of seniors live only on their Social Security checks. Their outside wealth is minimal. Given an ever-shrinking voucher, they would wind up buying skimpy catastrophic care plans from the insurance industry and eschew routine coverage, which would have to be picked up entirely out of pocket. It would result in self-rationing based on price — with poorer seniors simply forgoing necessary care. Moreover, there’s no way these catastrophic plans would not start lopping off most expensive end-of-life interventions, where most Medicare spending takes place. Those $100,000-a-year cancer drugs that add two months to life, like Provenge? Fugeddaboudit.
So one wonders. Where’s the “we have to have high prices to fund innovation” crowd — also known as the drug, biotech and medical device industries? You’d think they would be raising holy hell about the Republican plan. Yet I’ve yet to hear a word. Have you?
And that’s why it’s so difficult to take Republicans seriously, and why the deep cynicism that average, caring Americans have about the goings on in the nation’s capital is so justified. Everyone knows the cost control side of the Republican’s Medicare reform will never be implemented. They are eager to turn the program over to the insurance industry, period. But a decade hence, there is simply no way they would allow a CPI+1 formula to go into effect. It would simply be too draconian.
As everyone knows, competition among insurers has failed miserably in holding down costs, witness Medicare Advantage. So the truth about the Ryan plan is that it is privatization, pure and simple. It will lead to rising health care budgets, which benefits key Republican constituencies like the drug and device industries and well-off specialists, as far as the eye can see.
Merrill Goozner has been writing about economics and health care for many years. The former chief economics correspondent for the Chicago Tribune, Merrill has written for a long list of publications including the New York Times, Financial Times, The American Prospect and The Washington Post. You can read more pieces by Merrill at GoozNews, where this post first appeared.