Medicare costs too much, but how to rein it in?

AP News
Posted: Aug 16, 2012 5:05 PM
Medicare costs too much, but how to rein it in?

WASHINGTON (AP) — President Barack Obama and Republican rival Mitt Romney agree there has to be a limit to how much seniors pay for Medicare, but they're worlds apart on how to make that happen.

You wouldn't know it from the accusations they hurl on the campaign trail, but that is the real heart of the argument between the two leaders and their political parties.

There will be consequences for seniors and the nation's health care industry no matter which way the debate is decided, because both sides agree Medicare spending must be controlled.

Obama relies heavily on cutting payments, the amount hospitals might get for a heart bypass or how much a radiologist is reimbursed for reading an MRI.

Romney would give future retirees a fixed amount of money to pick their health insurance from competing private plans or a government program, thereby limiting taxpayers' financial exposure.

Some questions and answers about both approaches, and their pros and cons:

Q: Obama cuts Medicare by $716 billion, so how much does Romney cut?

A: There's no precise dollar-for-dollar comparison.

Obama's cuts to hospitals, drug companies and other providers are phasing in now as part of his health care law.

Romney has largely embraced his running mate Paul Ryan's Medicare overhaul plan. If implemented, Romney-Ryan wouldn't go into full swing until 2023, and key details have not been spelled out.

Nonetheless, the Congressional Budget Office did some long-range calculations on the Wisconsin congressman's latest plan.

The nonpartisan analysis found that Medicare spending would rise under both current policies that reflect Obama's approach and under Ryan's plan. But Ryan's way would grow Medicare far less.

In 2040, Medicare spending for a 67-year-old would average $14,300 under current policies, which include Obama's health care law, and $9,500 under the Republican plan. (It's about $6,000 now.)

The differences would grow noticeably bigger with time. In 2050, Medicare spending for a similar retiree would be $19,100 under current policies, and $11,100 under Ryan's plan.

That amounts to a "substantial cut in spending" compared with other policy scenarios, the budget office said.

Q: So, Ryan's plan — the one Romney agrees with — would cut Medicare more?

A: That's what Democrats claim. They're calling the plan a massive cost shift to retirees. (Under Romney's plan, those now 55 and older could stay in traditional Medicare, while those 54 and younger would go into the new program.)

Republicans say their plan is not about shifting costs.

They point out that other major industrialized countries are getting the same or better quality medical care for less money. Because Ryan's fixed insurance payment to retirees would limit the amount of taxpayer financing going into Medicare, it would finally force everyone, from the medical center CEO to the individual retiree, to be more cost-conscious about health care decisions.

Backers of the Romney-Ryan approach say its competitive design would help bring down costs for everyone. Romney says his goal is to preserve Medicare.

The budget office says the implications of the plan are unclear, because they would depend on specifics not yet fully spelled out as well as the reaction of hospitals, insurers, drug companies and other industry players.

Q: What are the risks of what Romney and Ryan are proposing?

A: The main risk is that the government payment for health insurance won't keep pace with health care inflation, shifting an ever-growing share of costs to people on fixed incomes, or forcing them to settle for lower quality service.

Think of it as being similar to the difference between a traditional pension plan that provides a defined benefit, and a 401(k) plan where individual circumstances and choices come into play.

Leaning against such risks, Ryan adjusts the government insurance payment so that it would grow a little faster than the overall economy. His plan also envisions added help for seniors in poor health.

That still may not be enough.

Ryan has done two versions of his plan with prominent Democrats, and both involved a more generous formula for adjusting insurance payments than what he steered through the Republican-led House.

Q: What are the risks of Obama's approach?

A: If the government just keeps cutting payments, Medicare will start looking more and more like Medicaid, the much leaner program for low-income people.

Doctors will stop taking new Medicare patients. Many hospitals and nursing homes would start losing money, and some may have to shut down. Innovation would slow, as drug makers and medical device manufacturers think twice about bringing new products to market. Seniors would have problems getting appointments or face waiting times for elective surgery. Quality would decline.

That's why the administration has launched dozens of experiments to deliver quality care for lower cost. But it could take years to see results.

Q: So where do Romney and Obama actually agree on anything about Medicare?

A: There are four big points to keep in mind.

Both agree there has to be an overall limit on the growth of Medicare spending. (Obama would use a powerful new board created by the health care law to ratchet down payments. He has yet to name the panel; Republicans are calling it a "rationing board.")

Both agree that wealthy beneficiaries should pay more for their Medicare.

Romney and Ryan want to gradually increase the eligibility age to 67, instead of the current 65. In closed-door budget negotiations with Congress last year, Obama hinted he might be willing to do the same as part of an overall debt reduction package.

Both would shift additional costs to beneficiaries. Obama has proposed higher deductibles for outpatient care, new copayments for home health, and policies to discourage the use of "Medigap" policies that can lower out-of-pocket costs — particularly for newly joining baby boomers.

The boomers would do well to pay attention: Medicare will change no matter who wins the White House. Unless lawmakers cut spending or raise taxes, the program's giant trust fund for inpatient care will go broke in 2024.