2012-05-11 / Columnists

It’s My Turn

A Blueprint For Medicare Reform
By Douglas Schoen

Douglas Schoen is a political strategist and the author of “Hopelessly Divided: The New Crisis in American Politics and What it Means for 2012 and Beyond” (Rowman & Littlefield).

Medicare, which according to a new assessment will go bankrupt by 2024, is in dire need of reform. But there are right ways and wrong ways to go about it. The right reform would save money while giving seniors better access to care.

Between 1991 and 2009, Medicare grew at an annual rate of 8 percent. In 2010, it cost the country an eye-popping $450 billion. We can’t afford this for long. In the next 75 years, Medicare will face unfunded liabilities approaching $36 trillion.

This is especially daunting because Americans are protective of the program. Seventy percent – including 53 percent of Republicans – would like to see it remain the way it is, according to a recent Kaiser Family Foundation poll.

The hard truth is that that’s impossible. Both Republicans and Democrats recognize the need for change. Unfortunately, their proposals have come up short.

Representative Paul Ryan’s plan, which passed the House this month, has many flaws. But it also has elements worth considering.

The Wisconsin Republican has proposed an exchange in which seniors choose among competing plans. It would give seniors a set level of support based on the cost of plans where they live, guaranteed to cover insurance at current levels. Those who opt for cheaper plans could pocket the savings. A recent American Enterprise Institute study found that competitive bidding of this kind could save $339 billion over 10 years without raising taxes or sacrificing benefits.

But many doubt that seniors would have enough guidance to choose wisely and that competitive forces would keep out-of-pocket expenses low. Plus, Ryan’s plan doesn’t even begin to balance the budget in its first decade. Indeed, it would likely keep seniors with the most serious health conditions in traditional Medicare, putting additional financial pressures on an already-overburdened system.

The main cost-control element in President Obama’s healthcare law is also problematic. The law established the Independent Payment Advisory Board, an all-powerful panel charged with keeping a lid on costs. Beginning in 2014, it will recommend cuts whenever Medicare is projected to exceed preset spending levels. Its recommendations can be overridden only by a twothirds vote of Congress or by a law imposing cuts of equal value, making them all but equivalent to law.

Worse, the board has limited options. It can’t adjust Medicare premiums, costsharing, or eligibility. What it can do is reduce reimbursement of healthcare providers.

Lower reimbursement rates could devastate the 44 million Americans who rely on Medicare by spurring an exodus of physicians from the program. Already, the American Academy of Family Physicians reports that more than 12 percent of its doctors no longer accept Medicare.

Any major changes in Medicare should be debated and decided by elected officials. A transparent discussion of the options would help Americans understand the trade-offs.

For example, lawmakers could consider raising the eligibility age for Medicare from 65 to 67, which would save $124 billion over 10 years. Increasing beneficiaries’ share of costs from 25 percent to 35 percent would save $241 billion.

Gradually limiting benefits for highincome enrollees – an idea proposed by Obama and backed by the bipartisan Simpson-Bowles commission – could save another $20 billion.

Lawmakers should also look at the parts of Medicare that work – in particular, the prescription drug benefit, known as Part D.

In Part D, private insurers vie for seniors’ business, competing on price and choice. Thanks to this competition, it has become the country’s most successful and cost-effective entitlement program.

In important ways, this approach isn’t very different from Ryan’s plan. Asked if the Part D model could be extended to the rest of Medicare, the respected chief actuary of the Centers for Medicare and Medicaid Services said, “Obviously, it would represent a large change from the status quo, but I think it could work.”

Lawmakers need to address concerns about Ryan’s proposal. A plan that squeezes or bewilders seniors isn’t the answer. But neither is the unaccountable, inflexible panel created by the healthcare law.

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