In his recent whiteboard presentation on Medicare, Mitt Romney made two basic claims that ought to be explored more fully. As you can see above, they are:
1.) President Obama proposes to cut $716 billion from Medicare for current seniors, while Romney proposes to cut nothing.
2.) President Obama’s approach would leave the Medicare trust fund bankrupt in 12 years, while the Romney approach would make the trust fund solvent and preserve the program for upcoming generations.
Let’s take a look at those assertions, in order:
1.) The $716 billion in reduced Medicare spending that Romney would “restore” would not go to Medicare beneficiaries, as he implies. The money also would not be used to extend the fiscal soundness of the Medicare trust fund. Much of it would go instead to higher Medicare reimbursement rates to doctors, hospitals and other health-care providers. In other words, Romney’s move would be good for stock prices, dividends and CEO salaries of drug companies, for-profit hospitals, etc., but the benefits to beneficiaries would be minimal.
In fact, sacrificing the cost reductions negotiated by the Obama administration wouldn’t merely add to the government’s cost, it would also end up costing Medicare beneficiaries money out of pocket. That’s because when costs to government go up, the share of payments that are shouldered by beneficiaries increases as well.
“Marilyn Moon, vice president and director of the health program at the American Institutes for Research, calculated that restoring the $716 billion in Medicare savings would increase premiums and co-payments for beneficiaries by $342 a year on average over the next decade; in 2022, the average increase would be $577,” the New York Times reports.
2.) Romney asserts that under current policy, the Medicare trust fund is scheduled to be empty by 2024. That is correct. However, by raising payments to Medicare providers by $716 billion — and remember, that’s exactly what he proposes to do — Romney would accelerate that bankruptcy by eight years, to 2016.
The only way to avoid that outcome would be to reduce benefits or raise premiums.
In the presentation above, Romney also asserts as fact that under his plan, the Medicare trust fund would be made solvent for future generations. Notably, he cites no evidence for that claim and no independent analysis to support it. He just states it as fact.
That’s because there is no evidence or analysis to support his claim. And there is no evidence or analysis because there is no plan in the first place. Romney has laid out only the barest of description about what he proposes to do. Essentially, he intends to give taxpayer-funded vouchers to senior citizens with which to purchase private health insurance.
As Romney explains the idea on his campaign website, “With insurers competing against each other to provide the best value to customers, efficiency and quality will improve and costs will decline. Seniors will be allowed to keep the savings from less expensive options or choose to pay more for costlier plans.”
In other words, Romney intends to solve Medicare by waving the magic wand of competition over the program. As a matter of ideology, it is consistent with Republican orthodoxy. The problem is that ideology is strongly refuted by actual real-life experience in this field.
If competition among insurers can actually drive down costs, as Romney hopes, why did private family health-insurance premiums jump by 113 percent between 2001 and 2011, according to the Kaiser Family Foundation? That’s more than four times the rate of overall inflation.
Romney’s bald claim that private-industry competition will drive down costs and make Medicare solvent is also undercut by the experience with Medicare Advantage, which he mentions in the presentation above.
Medicare Advantage was created in 1997 and expanded in 2003, and was designed to test Romney’s assertion. Basically, it offers seniors a voucher with which to buy Medicare-type coverage on the private market, the idea being that greater competition would drive more choice and more efficiency.
It hasn’t worked like that. On average, a Medicare Advantage plan today costs 12 percent more than traditional Medicare. The Obama administration proposes to end that subsidy — that savings is part of the contentious $716 billion — on the reasonable grounds that it is no longer sustainable.
In other words, when Romney argues that the Obama approach will end Medicare Advantage for 4 million Americans, he is correct. But the reason that he is correct undermines the entire basis of his Medicare proposal, as sketchy and incomplete as it is.
– Jay Bookman