Ryan-Rivlin Plan Would Be Bad News for Medicare

Warning that Medicare and Medicaid are “the primary drivers of upward pressure on the Federal budget,” House Budget Committee Chair Paul Ryan and former Congressional Budget Office head Alice Rivlin have proposed replacing Medicare with vouchers and Medicaid with a block grant.  These changes would profoundly impair health care coverage for the elderly, people with disabilities, and people with low incomes, my new report explains.  Moreover, they would not address the real reason for the projected large increases in these programs in coming decades:  rising costs throughout the U.S. health care system, both public and private.

We’ve already explained the problems with block-granting Medicaid, which would shift costs to states, beneficiaries, and health care providers, so I’ll focus here on the harmful impact of Ryan and Rivlin’s Medicare proposal.

Its biggest change would be to eliminate Medicare in its current form for people now age 55 or under.  Instead of receiving guaranteed coverage for hospital and medical care, they would get a voucher to help them buy private insurance on their own in a new marketplace called a Medicare Exchange.  The proposed Medicare Exchange, however, would lack crucial consumer protections that will be in the exchanges that health reform will establish for non-elderly people to buy coverage.  For example, there would be no minimum set of benefits that all insurance plans in the Medicare Exchange must provide.

Many beneficiaries would find that their voucher would be too small to buy coverage that’s comparable to what Medicare now provides.  (One reason is that eliminating traditional Medicare would tend to raise health costs, since the program generally pays less to providers and incurs lower administrative expenses than private insurance.)  As a result, “Voucher recipients would probably have to purchase less extensive coverage or pay higher premiums than they would under current law,” according to the Congressional Budget Office.

Starting in 2021, the Ryan-Rivlin plan would also raise Medicare’s eligibility age by two months a year from its current 65 until it reached 67 in 2032.  Most 65- and 66-year-olds would be eligible to buy coverage in the health insurance exchanges, but many of them would have to pay considerably more than they would under Medicare, and some would end up uninsured.

Moreover, adding these people to the exchanges would raise premiums for everyone else in the exchanges, since older people cost more to insure.  Those higher costs might lead some healthier people in the exchanges to drop coverage, which in turn could raise costs still further by making the pool of people in the exchanges sicker, on average.  If this process went far enough, it could jeopardize the viability of the exchanges.

Finally, the Ryan-Rivlin proposal would require many people who are allowed to remain in traditional Medicare to pay much more for health care by establishing a $600 deductible for Medicare-covered services and requiring beneficiaries to pay 20 percent of all costs above the deductible.

The larger problem with the Ryan-Rivlin proposal is that it would be unwise to try to get massive savings out of Medicare and Medicaid unless we can also slow the growth in private health spending.  Growth in federal health care costs is not driven by factors that are unique to public programs.  In fact, per-beneficiary spending has grown at nearly the same rate in Medicare and Medicaid as in the health care system overall over the past three decades.

Medicare and Medicaid can and should take the lead in slowing the growth of costs, as they have done in the past, but they cannot get too far out in front.  Attempting to force big cuts in federal health spending without also restraining the growth of private health care costs would simply shift costs to vulnerable beneficiaries (and limit their access to needed care) or, in the case of the Medicaid block grant, to state taxpayers.

Fortunately, the new health reform law takes important steps to slow the growth of health care costs.  Congress should work to assure its effective implementation, not undermine Medicare and Medicaid, which form the bedrock of health security for seniors, persons with disabilities, and those with low incomes.