August 28, 2012
By J.D. Foster, Ph.D.
Politics and politicians abhor tough issues. Well, suck it up, cupcake.
Take Medicare reform, for example. Despite all intentions to the contrary, we’re actually going to have a serious debate about Medicare thanks primarily to the tireless and courageous work of House Budget Committee Chairman Paul Ryan, Wisconsin Republican.
Year after year, since taking the lead at the budget committee, Mr. Ryan pushed his colleagues to adopt a serious budget with real spending reform across the government, including Medicare reform. It would have been easier to ignore the problems. But it’s not easy to ignore Paul Ryan or his arguments.
Most nonseniors know little about Medicare. They know it involves seniors and health care. They know about the Medicare payroll tax cutting their paychecks. They may have laughed at the absurd political ads suggesting conservatives such as Mr. Ryan want to roll grandma off a cliff in her wheelchair. That’s about it.
For their part, most seniors know they paid payroll tax while working and now feel entitled to Medicare. They also know they pay premiums, which must seem an odd feature of an entitlement. And they know they need additional private insurance because Medicare has coverage gaps, another odd feature.
All in all, though, it works pretty well for most seniors most of the time, so seniors naturally get nervous when talk turns to changing Medicare. But change is coming. President Obama’s health care reform, “Obamacare,” already changed it radically. Mr. Ryan would change it incrementally. The debate is about which change to accept.
Why all this change? Medicare today is complicated, but the basic issues are straightforward. They boil down to two questions that are so easy even a caveman can answer them. Two questions both involving words beginning with the letter “M”: Millionaires and monopoly.
Consider the following question: Should millionaires get subsidized health insurance? If you answered no, then congratulations, you win a cookie. You just solved Medicare’s biggest problem — its finances.
Medicare added about $223 billion to budget deficits in 2011. How? Medicare’s health insurance comes with an average annual subsidy of just more than $5,000 per senior. Sweet deal, but this subsidy is the source of the Medicare’s financing problem.
And this subsidy grows like fiscal kudzu. As health care costs rise, and the number of retired baby boomers increases, the subsidy and the number of subsidized seniors will both rise. Experts have long known this cannot go on indefinitely.
So Job 1 is to get Medicare spending under control. There are basically two approaches. The one that doesn’t work because it would destroy Medicare is to slash payments to doctors and hospitals. This cuts Medicare costs primarily by driving doctors out of the program.
Liberals like to charge conservatives with threatening to kill off Medicare. (Remember Grandma in the wheelchair?) Obamacare already did it. Health insurance isn’t worth much if doctors won’t see the patients. Medicare reform that guts Medicare services is not a viable option.
The alternative is to decide who should get subsidized insurance and who should not. Medicare’s subsidy is a vital part of the safety net for low-income seniors, but millionaires don’t need subsidies. Eliminate the subsidy for millionaires and Medicare’s finances are fixed.
If this is surprising, here’s another surprise: Reducing the subsidy is an accepted, bipartisan solution. President George W. Bush began to phase down the Medicare subsidy in 2004. Mr. Obama took it further in 2010, and has proposed to whittle it down further. The reason Medicare still has a financing problem is millionaires still get a subsidy.
The second question is: Should government have a monopoly providing health insurance for seniors? This is not a trick question because 25 percent of Medicare’s beneficiaries have opted for Medicare Advantage. These seniors have chosen their health policies from among competing private health insurers, duly screened and monitored by the Centers for Medicare and Medicaid Services.
Even among seniors who have opted for traditional Medicare, most also opt to purchase a subsidized drug plan. These are private plans screened by the centers and offered through Medicare. Seniors pick their plan and pay premiums accordingly. And, once again, the federal government kicks in a big subsidy.
The heart of the Ryan Medicare reform is first to ensure all seniors have access to and a choice of the health insurance plans that fit them best, building on proven features of the current Medicare system. Second, the Ryan reform ensures low- and middle-income seniors have access to this insurance at an affordable price, and eliminates the subsidy for those seniors clearly able to afford their own health insurance.
Truth be told, this is not a particularly conservative approach. Many centrists and liberals have championed these reforms through the years. It is a pragmatic approach as every element builds on prominent key features in Medicare.
Medicare reform can be tough. The crisis is now on our doorstep, and thanks to the likes of Paul Ryan we’re going to debate what to do. Mr. Ryan would build on Medicare’s strengths. All we need now is for Mr. Obama to stop ducking and join in the debate with real solutions.
• J.D. Foster is the Norman B. Ture senior fellow in the economics of fiscal policy at the Heritage Foundation.
First appeared in The Washington Times.
J.D. Foster, Ph.D.
Norman B. Ture Senior Fellow in the Economics of Fiscal Policy
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