Unequal Cuts: Understanding Obama’s and Romney’s Vision for Medicare

22 Aug

As a health policy wonk, I am encouraged by the fact that the Medicare program is finally receiving the level of attention it deserves during this presidential campaign season. At the same time, I am discouraged by the tremendous amount of misinformation swirling around in print, online, and over the airwaves. It seems that both the Obama/Biden and Romney/Ryan camps agree that we need to fix Medicare, but both sides blame each other for doing just the opposite. Obama says that Paul Ryan will “end Medicare as we know it.” The Romney campaign fires back, charging Obama with “stealing $700 billion from Medicare to pay for Obamacare.” Somewhere in there, are the facts, and since campaigns aren’t about educating the public, forgive me for taking some of that responsibility upon myself here.

Let’s start with Paul Ryan’s plan, which has changed over time. Now, the initial disclaimer that needs to be issued is that Paul Ryan’s budget isn’t necessarily synonymous with Romney’s, but Romney has made statements in support of the Ryan plan in the past, so until I hear otherwise, I am going to consider them a package deal. Ryan’s budget also addresses much more than Medicare. For example, it proposes to turn Medicaid–the program that pays for care for low-income women and children and long-term care for the elderly and disabled–into a block grant. More about that in a later post. For now, back to Medicare.

Paul Ryan claims that he wants to ensure the survival of Medicare, which is widely agreed to be on an unsustainable course. To do so, he initially proposed replacing the current Medicare program with a voucher program. When that received pushback from even members of his own party, he softened just a bit: Now he wants to give seniors a choice between the traditional Medicare program and the Medicare voucher program. Here’s how that works: Currently, Americans who are age 65 or older or disabled, are eligible for Medicare, which promises to pay for all of their medical care, as long as the service is a covered benefit.

By contrast, the proposed voucher gives seniors a fixed amount of money and sends them shopping for coverage, with the idea that this will lead to increased competition and will keep costs down without harming access or quality. While that idea might sound appealing, there are at least four problems with it:

First, because most patients don’t have the first idea about how to “shop” for health care and are prone to get the care that their physician recommends, the supply and demand of medical care don’t responded so well to traditional market forces.

Second, we’re talking about the elderly and disabled. Can you imagine a 93-year old woman taking her voucher each year and trying to comparison shop for insurance coverage through an online health insurance exchange? Neither can I.

Third, while the vouchers are set to be indexed for inflation, they may not keep pace with the costs of medical care, leaving seniors to pick up more and more of the tab themselves.

Fourth and finally, there is the threat of the death spiral. As currently proposed, it will be more likely that the younger and healthier beneficiaries will select the voucher option and purchase private insurance, while the older and sicker beneficiaries remain in traditional Medicare. This “adverse selection” is already apparent in the decision to enroll in Medicare managed care, which markets almost exclusively to more active and healthy seniors. Over time, this will make the traditional program more expensive and lead to its collapse. These are not good things.

Of course, in an attempt not to alienate seniors who might vote for Romney in November, none of this applies to anyone age 55 or older. I suppose the assumption is that people discount the future such that an 11-year window is enough to ignore these threats to Medicare and support Romney for other reasons. In fact, the only positive thing I can say about Ryan’s Medicare proposal is that it provides smaller vouchers to the wealthy than it does to those with lower incomes, which actually makes sense.

Then there’s Obama’s plan law. It keeps traditional Medicare just like it is today. There are no vouchers here. So, why all this talk of his administration stealing $716 billion from Medicare? Because the Affordable Care Act does make changes to the Medicare program to make it more efficient, and because saying he stole it will scare old white people more than the truth. Especially considering that Paul Ryan’s budget includes the very same cuts. Specifically, the ACA does things like reducing reimbursements to hospitals and other health care providers and eliminating the excess subsidy currently provided to the private insurers who administer Medicare managed care plans. There’s NOTHING in the law about cutting benefits for the elderly. Not a single thing. So, for starters, if Obama were stealing from Medicare, he’d be stealing from providers, not beneficiaries.

So, big difference number one is that Paul Ryan (and by extension Mitt Romney) proposes to turn Medicare into a voucher program, while Obama leaves the traditional Medicare program intact. Big difference number two is the $716 billion in cuts. Astute readers may be asking: If both Obama/Biden and Romney/Ryan favor the same cuts, how is that a difference. Well, for starters, Romney and Ryan want to repeal the ACA, which means those cuts would go away, and our deficit would increase. In reality, though, they don’t want to do that. They want to keep Obama’s cuts, they just have a different idea on what to do with the money. Obama, via the ACA, takes those savings and uses them to extend health insurance coverage to the uninsured, provide the elderly with free preventive care, and shrink the so-called “donut hole”–or coverage gap–that seniors face when paying for their prescription medications. The Romney/Ryan camp wants to take those savings and pass them along to the wealthy in the form of tax cuts.

The bottom line is that Obama’s vision for Medicare and the rest of the health care system would cover most of the country’s 50 million uninsured Americans. By contrast, Ryan’s vision for Medicare and the rest of the health care system would leave these people uninsured, and would actually increase the uninsured by between 14 and 27 million through Medicaid block grants, to say nothing of the uninsured and underinsured that may well result from turning Medicare into a voucher program. Sure, it may be cheaper, but that’s like saying your grocery bill was cheaper because you only ate on the weekends. Moreover, it won’t reduce the deficit, because the plan is simply to match the programmatic cuts with reductions in revenues. That’s right. If we stop taking care of our most vulnerable citizens, we can afford to give bigger tax cuts to the wealthy. One of the visions will soon become a reality. Do you want to wake up in a nation where nearly everyone has health care and everyone pays their fare share or in a nation where 77 million people have no health insurance, so that the rich can keep getting richer than everyone else? The choice is yours.



Posted by on August 22, 2012 in Uncategorized


2 responses to “Unequal Cuts: Understanding Obama’s and Romney’s Vision for Medicare

  1. Janice Hendrix

    August 22, 2012 at 6:45 pm

    Very informative Brad!!

  2. Moses Tafarki

    August 23, 2012 at 12:46 am

    It seems this issue will be with us for a while. It does not help when arguments are not this coherent.


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