GOP Cuts in Medicare May Be Next After Dismantling Obamacare

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Nov 18 2016

The pledge by President-elect Donald Trump and congressional Republicans to “repeal and replace” the Affordable Care Act beginning early next year has dominated the national policy debate since Trump, and the GOP swept to victory in last week’s election.

With potentially 20 million or more Americans threatened with the disruption or loss of their Obamacare insurance coverage in the coming years, Trump and GOP leaders are coming under mounting pressure to explain precisely how they would replace Obamacare once they pass legislation early next year to dismantle key elements of the program. 

Related: Congress Gives Trump a Chance to Recast the Federal Budget

However, practically overnight the Republicans have substantially raised the stakes in their drive to reform the government health care system and cut costs. House Budget Committee Chair Tom Price (R-GA) told reporters on Thursday that the House GOP will likely push next year for major changes and cuts in Medicare, the premier health care program for 57 million seniors that has been the bedrock of retirees’ health coverage since the mid-1960s.

Price, who reportedly is being considered by Trump to head the Department of Health and Human Services, said that Republicans would likely move “within the first six to eight months” of Trump’s administration to begin implementing their plan. Key elements include raising the age of eligibility from 65 to 67 and gradually privatizing the system with government-issued vouchers or “premium supports” to defray the cost of insurance policies purchased on the open market.

Trump repeatedly promised during the presidential campaign that he would not cut Social Security or Medicare to control government spending and address long-term deficit problems. "So, you've been paying into Social Security and Medicare...but we are not going to cut your Social Security, and we're not cutting your Medicare,” Trump said at a rally in Iowa in December 2015.

However, privatization of Medicare has long been a central feature of House Speaker Paul Ryan’s highly controversial budget proposals that enjoyed substantial GOP support in the House but never made it past the Senate. Now Ryan and other Republican House leaders believe that the election results are a mandate to push a bold agenda including Medicare reform – much to the dismay of advocates of the program.

Related: Five Things Trump Wants to Do That Liberals Would Love

“This is one case where there just seems to be a gross contradiction between something that Trump clearly stated and what the congressional Republicans are now talking quite openly about doing next year,” said Paul N. Van de Water, a senior fellow at the liberal Center for Budget and Policy Priorities. “I didn’t follow Trump’s promises verbatim over the campaign, but everybody certainly seems to have picked up the notion that he promised not to cut Social Security and Medicare.”

“It’s hard to see how one could square that with either premium support for example or certainly raising the Medicare age,” he added in an interview Friday. “Both of those are either reducing benefits or requiring people to pay more for the same benefits, which is essentially the same thing.”

For years dating back to the administration of President George W. Bush, Republicans have been advancing proposals for replacing traditional Medicare with some private system, but those proposals have never gotten very far. The latest iteration of that plan – to preserve traditional Medicare for those currently in the system but to pressure younger Americans to gradually shift to a voucher plan – was included in a major health care policy paper Ryan released June 22 called “A Better Way– Our Vision for a Confident America.”

“Medicare . . . by many measures has served seniors successfully since the1960s by providing access to health care for millions and contributing to longer life expectancies,” Ryan wrote. “Despite these successes, the program faces notable challenges, including a complex financial structure and projected spending growth that make the program unsustainable for the long term.”

Related: Ryan Declares GOP Has a ‘Mandate’ to Enact Sweeping Changes

“If we act now, this can mean that traditional Medicare will continue for those currently on the program or near Medicare eligibility,” he added.

Ryan said last week that Medicare would be up for review in the new Congress, although he did not signal a precise timetable or how he hoped to orchestrate passage of legislation that is certain to be met with a firestorm of opposition from AARP and other seniors’ advocacy groups, veterans and liberal Democrats.

House and Senate GOP leaders intend to use an obscure budget parliamentary maneuver called reconciliation to push legislation through in January to repeal Obamacare by a simple majority, without having to muster a 60-vote supermajority to overcome a Democratic filibuster.

House GOP leaders will likely use reconciliation to push through a second budget resolution for fiscal 2018 that includes their Medicare reform package, according to Price. When asked by a reporter for the publication TPM about timing for changes to Medicare, Price replied yesterday: "I think that is probably in the second phase of reconciliation, which would have to be in the FY 18 budget resolution in the first six to eight months."

Related: Medicare Unveils Big Changes in How It Makes Payments

Tampering with Medicare is politically risky at best. The federally funded health care program covers much of the cost of hospital care, physician visits and drugs for those 65 and older. Medicare benefit payments totaled $632 billion in 2015 and accounted for 15 percent of the federal budget. Medicare is funded primarily with general revenues (42 percent), payroll taxes (37 percent), and beneficiary premiums (13 percent).

Medicare spending growth has slowed in recent years, according to an analysis by the Kaiser Family Foundation. While costs are expected to continue to grow more slowly in the future compared to historical trends, “there are signs that spending growth could increase at a faster rate than in recent years,” in part because of rising prescription drug spending, growing enrollment in Medicare, and increases in provider payments.

However, Ryan and other deficit hawks have long argued that Medicare’s spending trajectory is not sustainable as the population ages and more and more baby boomers seek coverage. He cites a Congressional Budget Office estimate that the Part A Hospital Insurance trust fund will be insolvent in 2026, four years earlier than previously projected.

The Republicans’ solution, in part, is to raise the Medicare eligibility age beginning in 2020 and moving Medicare toward a “premium support” model. Instead of continuing with Medicare’s current guarantee of paying for a certain level of coverage – roughly 80 percent or more for a hospital stay—a premium support or “voucher” plan would provide seniors with a fixed sum to purchase health care coverage on the private insurance market, according to an analysis by the Center for Budget and Policy Priorities.

Related: Here’s Why Reforming Medicare Spending Is So Difficult

The size of the premium support would likely vary by region, to account for regional differences in health care costs, according to the analysis. Moreover, it would provide enough of a subsidy to purchase a modest insurance plan, at least in the beginning.

Seniors could choose from a menu of private health care plans offering a wide range of coverage, and the government would pay the Medicare premium supports directly to the plan to subsidize the cost. Seniors would have to pick up the rest of the cost.

Ryan said the program would operate like the Federal Employees Health Benefits (FEHB) program, “where plans compete for individuals’ choice based upon premium amount, and a certain percentage is offset by the government to lower the cost of the coverage.”

Van de Water, who wrote the CBPP analysis, said Ryan’s latest proposal leaves many questions unanswered, including whether it would address mounting co-payments and other out-of-pocket costs, or whether the vouchers would be tied to inflation to keep up with rising health care costs.

Related: Crackdown on Medicare Fraud Is Producing Some Impressive Results

“I don’t think we have any idea under the current plan how fast the vouchers grow,” he said.

That is an important question because it goes to the fears of many critics that the voucher plan would fall far short of what seniors would need to purchase adequate coverage, and that it would shift more and more health care costs away from the government and to a rapidly aging population.

What’s more, as the government makes it more expensive to remain in traditional Medicare, younger and healthier seniors would likely gravitate to cheaper, individual health care plans while older and sicker seniors would continue to cling to traditional Medicare. That would put more and more financial pressure on the government program, further undermining its financial stability.

“That’s the general consensus on this,” Van de Water said. “Premium support would be a threat to traditional Medicare.” 

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