Everyone agrees that controlling health care costs is the key to bringing long-term federal budget deficits under control. Government spending on Medicare for seniors and Medicaid for the poor has grown nearly twice as fast as the rest of the economy for decades and is by far the largest component of future projected deficits.
But government funded health care programs aren’t unique in that regard. Employer-based coverage for the working population, which is provided through private insurance companies, has grown just as fast. The problem in a nutshell is the cost of health care, not its funding source.
That’s why it’s important to consider how the two separate sides of our health care system – public plans and private plans – will interact should the Medicare privatization plan that Rep. Paul Ryan, R-Wis., touted on Fox News Sunday become law. The House Budget Committee chairman’s alternative budget would turn Medicare over to private insurers for anyone who retired after 2021. Future retirees would receive a capped payment to buy insurance (he called it “premium support,” not a voucher). Medicaid would be turned into a capped block grant--which translates as a fixed sum awarded to states.
Capping expenditures is central to cost-control in the Ryan plan, which is essentially the same plan that he co-authored with former Congressional Budget Office director Alice Rivlin during the fiscal commission deliberations. The plan limits the annual growth in the amount earmarked for either premium support or block grants to one percentage point more than gross domestic product (called it GDP+1).
That’s about half of the actual health care cost outlays in most years. According to Congressional Budget Office projections released in January, federal spending on Medicare and Medicaid is expected to nearly double to $1.6 trillion by 2021, about a 7 percent annual increase. If the primary goal is holding down taxes and spending, capping that rise at GDP+1 provides the upside. With a wave of the legislative wand, government spending on healthcare for the old and poor would be reduced to more manageable proportions – between 3.5 and 4.5 percent a year depending on how fast the economy grows. Taxpayers could rejoice.
But just because the government slowed its spending doesn’t mean that old people and the poor wouldn’t have the same health care bills they had before. Health care for these vulnerable populations absent some other force in the marketplace would continue growing at rates significantly faster than the Ryan plan’s GDP+1 formula, just as it has for decades.
Who would pick up the costs that once were picked up by the government? Under the existing system, doctors and hospitals already complain bitterly about the insufficient fees that Medicare pays for the services they provide seniors. Whenever Congress gets close to actually cutting physician pay, which is mandated by prior cost control laws, they immediately restore the cuts out of fear thousands of doctors will carry out their threats to stop seeing Medicare patients.
One option for physicians and hospitals under a capped Medicare premium support system would be to step up what they have always done when faced with inadequate Medicare reimbursement. They could shift even more costs to private, non-Medicare payers, that is, employers and their covered employees. For working stiffs and their bosses, higher taxes would be replaced by higher insurance premiums.
Another option would be for insurers to begin making skimpier plans available to seniors, who would have to make up the additional costs out of their own pockets. Co-pays would rise. Deductibles would rise. Fewer services would be covered.
Isn’t it possible that making seniors have “more skin in the game” through higher out-of-pocket expenses will succeed in cutting out wasteful spending and keep premiums within the capped limits? That’s what a group of conservative think tank experts argued in a letter to Congressional leaders on Friday. Premium support “is a new way of structuring the financing of Medicare benefits that gives beneficiaries more control over their health choices and spending,” they wrote. “This premium support arrangement would reverse the incentives now in Medicare that promote wasteful spending.