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Saving Medicare

The political battle heats up over Medicare’s future

by: Marsha Mercer and Patricia Barry, from: AARP Bulletin, July 1, 2011

The Ryan plan is not a viable option," says Alice Rivlin, an expert on fiscal policy who was the first director of the Congressional Budget Office and recently a member of the president's debt commission. But, she adds: "The first thing to recognize is that we do have a problem. The status quo is not an option for very long."

The latest Medicare trustees' report predicted that the hospital insurance trust fund — where workers' Medicare payroll taxes end up — will start running out of money in 2024. Over the next 18 years the retiring boomer generation will double the number of Medicare enrollees. And unless costs are curbed, the program will eat up an ever-increasing chunk of the national budget.

Ryan's plan is "severe" because he's "trying to solve the whole deficit problem with spending cuts alone," Rivlin says. But "a good bipartisan plan will have some combination of market forces and regulation, spending cuts and revenue increases." John Rother, AARP executive vice president for policy, agrees that "no one strategy is going to be sufficient."

What Is the Ryan Plan?

Converts Medicare to a voucher plan (or "premium support" system) in 2022. New beneficiaries would choose a private health insurance plan from a government-run insurance exchange and receive a government subsidy paid directly to the insurance company toward the premium's cost. The first subsidies would be based on estimates for average Medicare spending on each beneficiary in 2022, adjusted for health status, age and income.

Reduces government health care costs over time by pegging the increases in the subsidy paid to each enrollee to the annual rate of inflation, which is much lower than the current rate of medical inflation.

Raises health care costs for Medicare enrollees substantially over time because they would pay the difference — out of pocket — between the subsidy and the actual cost of the insurance premium.

Continues traditional Medicare for people 55-plus and those with disabilities covered by Medicare before 2022 — but with reduced benefits compared to current law. Lets them switch to the new voucher plan in 2022.

Next: Other proposals for fixing Medicare. >>