With the 2011 budget battle seemingly resolved, the Medicare battle has begun.
Medicare, more than any other program, including Social Security, threatens to wreck our federal finances.
The Center for Medicare and Medicaid Services has estimated that without the ambitious, projected Medicare spending cuts under the new health care law — cuts that are unlikely to win congressional approval, if history is a guide — Medicare expenditures as a percent of GDP would grow from 3.18 percent today to 8.17 percent in 2050, and to 10.70 percent in 2080.
On Wednesday, President Obama proposed to cut Medicare costs by $340 billion over the next decade through lower reimbursements to drug companies and through the Independent Payment Advisory Board, which would only permit treatments to Medicare patients that it deems are cost-effective.
Obama’s solution: Physicians will only be allowed to prescribe treatments to Medicare patients that are approved by the IPAB, a form of rationed care.
In an alternative approach, House Budget Committee Chairman Paul Ryan, R-Wis., has suggested replacing Medicare with a program similar to the Federal Employees Health Benefits Program.
Despite its shaky financial future, the new health care law has plundered Medicare. Beginning in 2013, Medicare taxes will rise on income and capital, reducing incentives to work and invest.
These new tax revenues will be used for the new health care system for people under 65. In addition, $500 billion in Medicare savings over the next decade is projected to be reallocated to the new health insurance scheme.
Clearly, Medicare is in trouble and needs change.
Ryan’s approach, known as “premium support,” would let seniors who retire beginning in 2021 choose from a variety of government-approved, competing health insurance plans, at different prices with different levels of service.
Medicare would pay a certain portion of the insurance company premium, with the amount to depend on the income, age and health of the beneficiary. The rest of the premium would be paid by the beneficiary.
This would inject more choice into Medicare, turning it from its current structure into a system of competitive managed care, modeled after the Federal Employees Health Benefits Program, with more choice among plans.
In his Wednesday speech, Obama attacked Ryan’s plan: “It says instead of guaranteed health care, you will get a voucher. And if that voucher isn’t worth enough to buy insurance, tough luck — you’re on your own.”
But premium support is not a voucher. Under premium support, the government gives seniors a choice of a variety of preapproved plans at different prices. With a voucher system, seniors are not limited to government-approved plans.
Premium support is used by federal government workers, members of Congress and their staffs, and government retirees. As health care costs have risen over the past two decades, the program remains popular.
Unlike Medicare, there are few complaints. In fact, many federal government workers value their ability to keep the health plan during their retirement.
The advantage of the federal workers’ health program is the variety of plans at different prices, ranging from traditional fee for service to managed care to health savings accounts combined with insurance for catastrophic care.
More choice means lower costs. Medicare Part D, the prescription drug benefit, has cost less than was forecast because seniors have a choice of plans that compete for their business.
Under Obama’s proposal, Medicare costs would be cut through rationing. If the IPAB says your treatment isn’t worthwhile, then it’s indeed “tough luck — you’re on your own.”
Most Americans approaching retirement would choose the FEHBP over Medicare and over rationing. Let’s give it to them.
Examiner columnist Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute.