One of the "highlights" of the Paul Ryan budget plan is his reformation of Medicare. It's been difficult to get the facts on his plan through all the partisan noise on both sides, so I sat down with Google and decided to figure out exactly how Ryan's Medicare plan would actually work. Keep in mind that Ryan's budget includes the repeal of the Affordable Healthcare Act, aka Obamacare. This becomes important later on.
The changes to Medicare would apply only to people who are now 54 years old or younger; current beneficiaries and those approaching retirement age would not be affected, meaning that changes wouldn't begin until 2022, when those currently 54 begin to turn 65. For these new beneficiaries, Medicare would be transformed into an annual "premium support payment" to be used to purchase insurance. The amount of the payment would be higher for those with greater health needs, and would be adjusted for geographical differences in the cost of health care. Seniors could choose either traditional Medicare or a private health insurance provider. The providers would be part of a health insurance exchange (much like that in the Affordable Care Act, ironically enough) and would theoretically compete for seniors' business, thus keeping costs lower. The premium support payments would go directly from the government to the insurance plan chosen by each individual (so seniors can't cash the check and spend it on riotous living instead of health insurance).
The amount of the annual payment would be based on the second-cheapest plan in each market. Seniors who wanted a more expensive plan would have to pay the difference out of pocket. Every year, Medicare and the private insurers would submit bids, and the annual payment would be adjusted based on those bids. Every year, the payment amount would also rise to reflect inflation, and to reflect the fact that most seniors need more health care as they age. Currently, the payment amount for the average 65-year old under the Ryan plan is projected to be $8000 in 2022, which is the same amount as projected federal per-capita spending under traditional Medicare in 2022. The program will also be means-tested, so that the richest seniors get a smaller benefit. The wealthiest 2% of enrollees will receive 30% of the premium support amount. The next wealthiest 6% would receive 50% of the premium support amount, and the remaining 92% of Medicare enrollees will receive the full premium support payment amount. Also beginning in 2022, the age of eligibility would rise by 2 months every year until it reached 67 by 2033.
Few will dispute that Medicare needs reform. It is clear that, with the growing number of seniors becoming eligible for Medicare, payment of benefits at current levels will become unsustainable. And I give Paul Ryan grudging kudos for sitting down and coming up with a plan. But will it work? The death knell for his plan is that absolutely nothing happens until 2022. Current projections by Medicare trustees show that Medicare Part A (hospital insurance) will become insolvent in 2024; should nothing else change, after 2024, the Medicare Trust Fund would recieve enough income to pay 87% of anticipated Part A expenses in 2024. However, this projection relies on the Affordable Healthcare Act remaining law. Without it, Medicare could run dry as early as 2016. So Paul Ryan's plan effectively shoots itself in the foot by eliminating the very health care reforms that would keep Medicare solvent until its new iteration would take effect. So no, by definition, it wouldn't work. I won't even get into the question of whether the concept of competing health insurers will actually drive down costs for the demographic that uses the most health resources. But I will say that if it gets people thinking about how we will handle Medicare for baby boomers and beyond, then it has served a beneficial purpose. In other words, it's greatest use is in theory, not in practice.
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