Ending the Medicare Debate

If you care about Medicare, then who lost last week’s Presidential debate?  Perhaps we all did.

That’s because both candidates favored some cuts in the Medicare program.  And cuts translate into a real impact on real people.

But no cuts could mean something even worse - unsustainable levels of spending in the Medicare program.

The question is what’s the lesser evil – a cut in payments to providers or a cut in benefits to individuals?  That’s the choice President Obama and Governor Romney gave us.

President Obama favored cuts in payments to providers.  Governor Romney favored cuts in benefits to individuals.  The difference in their positions became clear as Romney pressed his point about the $716 billion in “cuts” that Obama supported in the Affordable Care Act.

The “cuts” Obama favored actually fell into two categories that are built into the law – provider rate reductions and cuts to private insurers offering Medicare Advantage plans. 

The provider rate reductions arguably hit doctors the hardest, because ACA presumed that the so-called “doc fix” won’t happen anymore beginning next year.  The “doc fix” has had bipartisan support every year since 2002, because it corrects a provision in the Medicare reimbursement formula that would immediately reduce reimbursement by around 30%. 

The other provider cuts are realized by limiting the increase in future Medicare reimbursements to 5% per year – less than the 5.7% health care costs are expected to grow.

Romney was emphatic during the debate that as President he would restore not just these provider dollars, but the private insurers’ administrative dollars, too.

But Obama pointed out that these savings were used in part to finance the closing of the Medicare donut hole and new Medicare prevention benefits.

More significantly, they also change the trajectory of Medicare spending significantly over time.  According to the 2012 annual report of the Medicare Trust Fund trustees, even with the savings the overall cost of Medicare will grow from just under 4% of GDP today to just over 6% in around thirty years, and then grow a little higher through 2085 (those are the green lines in the chart). 

So Obama just cuts away at the increase.

Romney’s position is more extreme.  Because without the savings, the cost of Medicare will grow to 7% of GDP by 2040, and then skyrocket to over 10% (those are the red lines in the chart) by the time babies born today hit retirement age.

If we had to borrow to cover that, it could bankrupt America.

Romney obviously doesn't want to bankrupt America.  But he did say that he favored leaving Medicare alone for people age 60 and above. (Note: The Ryan plan says 55, but Romney said “60” in the debate.)

For everyone else, Romney wants to reduce the projected cost of Medicare by changing it to a voucher program. 

He would give a health insurance voucher to everyone when they turn 65, and let them use it to purchase either “traditional” Medicare or private insurance through a federal Medicare exchange. 

The value of the voucher will be tied to the second-cheapest plan available, and won’t keep up with health care inflation.  The Medicare recipient will have to pay the difference out of pocket, negotiate with a doctor to accept less, or ration their own care.

Romney made a good argument for at least doing the “doc fix” again by arguing that many doctors won’t be able to absorb a huge rate cut, and will drop out of Medicare if the rate reductions are put into place.  But Obama made an equally valid point that the vouchers could be even worse for recipients. 

If the arguments are left standing there, as they were in the debate, then something has got to give, and everyone's going to lose.

So why not give voters a different choice – one that could end the debate with everyone a winner?  Because there is another option that could save Medicare for our grandchildren without resorting either to borrowing or to huge provider cuts or to Medicare vouchers. 

We have all enjoyed a 2% payroll tax “holiday” for the last couple of years to help stimulate the economy.  When this holiday comes to an end, all we need to do is to dedicate 1.33% back to the Medicare Trust Fund.

If we did this, then Medicare would be solvent for the next seventy-five years.

That's a choice about taxes we all should be offered.  Maybe we’d vote no, but at least we’d be voting with our eyes open.

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