How Romney's VP running mate Paul Ryan plans to change Medicare

Wisconsin Republican Paul Ryan, GOP presidential hopeful Mitt Romney’s choice for vice president, has provoked consternation from Democrats and anxiety among some congressional Republicans with his proposals to reshape Medicare.

Mitt Romney introduces Paul Ryan as his choice for running mate in Norfolk, Va., Saturday (Photo by Win McNamee/Getty Images).

The Republican-controlled House, along party lines, twice approved his proposals to overhaul the popular social insurance program for the elderly and disabled by giving beneficiaries a set amount of money every year to buy coverage from competing health plans. That is a fundamental shift from today’s program, where the federal government pays for as many services as beneficiaries use.

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The proposals were never enacted because of opposition from the Democratic-controlled Senate and President Barack Obama.

This year, Democratic congressional candidates nationwide are making the protection of traditional Medicare a centerpiece of their campaigns, just as Republicans attacked them two years ago for curbing future Medicare spending as part of the 2010 health care law. Now, Democrats are hammering their GOP opponents for voting for Ryan’s proposals, which were included in the last two House budget resolutions.

Here is a guide to some of the issues and questions raised by Ryan's plan.

Q. What is Ryan’s latest Medicare plan?

Ryan would gradually raise the eligibility age of Medicare from 65 to 67 by 2034, and cap its spending increases at half a percentage point higher than the growth rate of the economy, or the gross domestic product. Ryan’s plan would provide a set amount of money annually for future Medicare beneficiaries -- those currently under age 55 -- to be used to purchase either a private health plan, or the traditional government-administered program through a newly created Medicare exchange.

Under the proposal all plans, including traditional Medicare, would submit bids for how much they would charge to cover a beneficiary's health care costs. All plans would include a minimum set of benefits equal to the value of those in the traditional program. The government would pay the full premium for the private plan with the second lowest bid, or for traditional Medicare, whichever is lower. Beneficiaries would have to pay the difference if they chose a plan that set rates higher. There could be one less expensive plan option, and beneficiaries who chose it would get a rebate for the difference.

Private health plans would have to offer coverage that is at least actuarially equivalent to that offered in the traditional, government-administered plan. That means that while the benefits could vary, the value of the plan would have to be the same.

Q. So seniors could stay in the traditional, government-run Medicare program if they like?

Ryan says that is the case, but Democrats and some critics argue that the plan would so fundamentally alter Medicare that it might no longer be a desirable – or affordable -- option.

"The real question is what it would cost," and whether seniors would pay more out of pocket than they do now, said Jonathan Gruber, an economist at the Massachusetts Institute of Technology. He cited the risk the government-run plan would attract the sickest people, driving up its costs, while private plans would lure the healthiest. In addition, medical providers could abandon the program if Medicare cut their reimbursement rates to curb costs.

Q. Would the changes apply to current seniors?

Ryan’s plan would apply only to those under age 55. Current Medicare beneficiaries and those nearing eligibility would continue to get Medicare as it exists today.

Q. Would seniors pay more under Ryan’s plan?

The Congressional Budget Office estimated that Ryan's original proposal from 2012 would require a typical 65-year-old person to pay a lot more for Medicare by 2030. His latest plan is missing key details, however, so the CBO has been limited in its analysis of the impact.

Although Ryan would give future seniors the option of remaining in the traditional, government-run Medicare program, that program would have to compete with private plans. Critics predict that traditional Medicare could become unaffordable if it attracts the sickest people who require more health care and who, therefore, drive up the program’s costs.

Q. Ryan’s most recent plan is similar to one he co-authored with a Democrat last year. Does that mean it has bipartisan support?

No. Sen. Ron Wyden, D-Ore., did not endorse Ryan’s Medicare plan in the last House budget resolution. It is similar to a plan that the two wrote together last year, but there is an important difference. The limit on federal spending per beneficiary was not as strict in the plan they wrote together: The two had placed the cap at GDP growth rate plus 1 percent. Also, no other Democrat supported their 2011 proposal.

Q. How do Ryan’s proposals compare to Democratic plans?

President Barack Obama and many Democrats have said they agree the federal government needs to restrain the growth of Medicare spending, but they seek to do it without making direct cuts to benefits. Democrats want to preserve the program’s defined benefit basis, meaning that the government will pay whatever it takes to cover a specified set of services. During budget deficit reduction negotiations in Washington, Obama proposed holding Medicare spending to half a percentage point higher than the growth rate of the economy. Romney later adopted the same cap.

As part of last year’s budget negotiations, Obama also proposed gradually raising the Medicare eligibility age – if Republicans agreed to revenue raising proposals. But no agreement was reached.

The health law tackles Medicare spending growth, in part, by creating an expert panel, called the Independent Payment Advisory Board (IPAB), which would be responsible for finding ways to reduce spending if Medicare grows at a higher rate than the target. But the board is not allowed to recommend anything that would ration care or that would change benefits, eligibility or cost sharing for Part A (hospital services) or Part B (physician services). It also couldn't do anything to change the percentage of premium that seniors pay for prescription drug coverage, or the subsidies that low-income individuals get. The expectation is that reductions would come from medical providers, although hospitals are protected at first.

Q. If both Obama and Ryan are proposing a target rate of GDP growth plus half a percentage point for Medicare, wouldn’t federal spending be the same under both scenarios?

There are important differences. Ryan's plan is a hard cap on federal spending. He would automatically lower Medicare spending so that it is below the trigger level.

Obama is proposing a target that might not bring federal spending down to that level. His proposal follows an effort in the 2010 health law to curb Medicare cost growth by tying the spending target to the Consumer Price Index in early years, and later on to the rate of GDP growth plus 1 percentage point. Now Obama is proposing to lower the target to the rate of GDP plus half a percentage point. If federal spending per Medicare beneficiary rises faster than that – a determination made by the Medicare actuary – then the expert panel must recommend cuts to Congress, which would go into effect unless lawmakers passed an alternative cost-cutting plan. The cuts would come as a percent reduction in Medicare spending, and wouldn’t necessarily be sufficient to meet the target.

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Moreover, the panel’s future may be in question, as Republicans – and some Democrats – have sought to kill it, arguing the board would be able to ration care and would have too much control over Medicare. Obama has yet to nominate the panel's 15 members, who must be confirmed by the Senate.

Some health care analysts also argue that reducing payments to medical providers could drive them out of accepting Medicare patients, creating access issues for beneficiaries. Richard Foster, Medicare's chief actuary, warned in the 2012 Medicare trustees' report that the health law will eventually lower payments to medical providers so much that "Congress would have to intervene to prevent the withdrawal of providers from the Medicare market and the severe problems with beneficiary access to care that would result."

This article was reprinted from with permission from the Henry J. Kaiser Family Foundation. Kaiser Health News, an editorially independent news service, is a program of the Kaiser Family Foundation, a nonpartisan health care policy research organization unaffiliated with Kaiser Permanente.


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