Only four Republicans in the House and four in the Senate have voted against adoption of U.S. Rep. Paul Ryan’s plan to end Medicare as we know it and replace with a private voucher plan. Congressional Republican leaders have also made it clear that they will insist on Medicare reform as the price for allowing an increase in the nation’s debt ceiling.
The issue has also had a major impact politically, with public opposition to RyanCare credited with handing an overwhelming Republican district in New York into Democratic hands last month. As a result, GOP leaders are now accusing their Democratic colleagues of using “Mediscare” tactics to exaggerate the impact of Ryan’s plan.
The controversy has led me to re-read the Congressional Budget Office’s analysis of RyanCare and its impact, released in April. The report is based on descriptions of the plan provided to CBO by Ryan and his staff, and was done at Ryan’s request.
A brief bare-bones review before we get started: For those born in 1956 and earlier, RyanCare would change nothing. For those born in 1955 and later, RyanCare replaces Medicare with a government voucher that senior citizens can use to subsidize their purchase of private health insurance plans.
The CBO report is 29 pages, but as it turns out, the agency provided a succinct, if somewhat dense, summation of its major findings in a single paragraph, which I’ve broken into sections and reprinted below. The CBO language is in plain text; my own commentary follows in italics.
“A private health insurance plan covering the standardized benefit would, CBO estimates, be more expensive currently than traditional Medicare. Both administrative costs (including profits) and payment rates to providers are higher for private plans than for Medicare.”
(In other words, because it privatizes coverage, RyanCare would drive total health-care spending on senior citizens considerably higher than it would be under Medicare. As CBO notes, administrative costs are considerably higher in private plans. In addition, because private plans lack the market power of Medicare to control costs, they pay more than Medicare for the same services.
How much would costs rise? By 2022, CBO numbers estimate, the cost of a Medicare-equivalent health insurance plan purchased from a private company for a 65-year-old would be $20,500. If that same coverage were provided through Medicare, total costs would be just $14,500. That’s an extra $6,000 in costs to be paid by the recipient, on top of the $6,500 in out-of-pocket expenses already required under Medicare.
To get some idea of the impact of that additional cost, Social Security predicts that in 2022, SSI recipients aged 65-69 will have a median income of just $34,000 from all sources. Again, that’s the median income. Half will have higher incomes; half will have lower incomes. And again, according to CBO, out-of-pocket health expenses for a 65-year-old under RyanCare in 2022 will total $12,500.
$34,000 – $12,500 = not very much)
“Those higher costs (of private health insurance) would be offset partly but not fully by savings from lower utilization stemming from two sources. First, private health insurers would probably impose greater utilization management than occurs in Medicare.”
(In other words, to borrow the bluntly misleading terminology of the right, “death panels.” Private companies would try to offset their greater administrative costs and other inefficiencies by denying treatment more often.)
“Second, private plans might restrict enrollees’ ability to purchase supplemental insurance plans; enrollees would thus face higher out-of-pocket costs than they do in Medicare, and that increased cost sharing would encourage lower utilization.”
“Lower utilization” means less health care. And as CBO warns, that could have other consequences. For example, “beneficiaries’ greater cost-sensitivity could result in a slower introduction or less frequent use of new, costly, but possibly beneficial, technologies and techniques than would occur under current law. Instead, technological innovation might focus increasingly on cost-saving rather than cost-increasing technologies.”
“On net, for a typical 65-year-old in 2011, CBO estimates that average spending in traditional Medicare will be 89 percent of (that is, 11 percent less than) the spending that would occur if that same package of benefits was purchased from a private insurer.” (see Figure 1 below.)
In more direct English, if Medicare were to be privatized today, costs would immediately jump 11 percent. As Figure 1 from the CBO notes (see below), by 2022, total health insurance costs under RyanCare would be 33 percent higher than under Medicare. By 2030, total health insurance costs would be 40 percent higher than under Medicare. And again, all of that additional cost and then some would come out of the pockets of senior citizens and into the pockets of the insurance industry.
– Jay Bookman