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Saving Medicare

The political battle heats up over Medicare’s future

En español | Jubilant supporters chanted, "Medicare! Medicare!" after Democrat Kathy Hochul shocked the political world with her upset win in a special election in New York's conservative 26th Congressional District, for a seat held by Republicans for all but 16 of the past 154 years.

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Protesters against cutting Medicare hold signs that read, hands off my medicare.

Activists protest GOP efforts to cut Medicare. — Photo by: Alex Wong/Getty Images

The chant reflected the fact that Hochul had campaigned strongly against the Republicans' controversial plan to overhaul Medicare. Her come-from-behind triumph in May was thus widely seen not only as a rejection of that plan, even among many Republican voters, but also as an indicator that the new battle over Medicare will be a defining issue of the 2012 elections.

"We will keep the promise made to our seniors who have spent their lives paying into Medicare, so they can count on health care when they need it most," declared Hochul, 52, at her victory celebration.

Democratic strategists immediately began planning to campaign against the GOP Medicare plan in nearly 100 competitive House districts in 2012, even dreaming of sending House Budget Committee Chairman Paul Ryan, its author, back home to Janesville, Wis.

The Ryan plan

Ryan's plan — passed by the Republican-controlled House as part of its budget proposals but rejected in the Senate — aims to terminate government-run Medicare for everyone who becomes eligible for the program after 2021, replacing it with a voucher plan known as "premium support." That system would provide new beneficiaries with a government subsidy to buy their own private insurance on the open market.

Both parties already are jockeying to frame the issue in ways their strategists hope will appeal to voters in the 2012 elections. Democrats paint the Ryan plan as "ending Medicare as we know it" and switching more costs to older and disabled Americans. Republicans portray it as a necessary means to curb government spending and reduce the national debt. In the current deficit debate, the GOP message so far has presented a stark choice — either end Medicare as an entitlement program or drive the country into bankruptcy.

But beyond the political rhetoric, health policy experts say that while it's true that Medicare spending needs to be reined in, this can be achieved by less radical solutions. They also point to political ironies inherent in the Ryan plan. It relies on setting up health insurance exchanges in the states and providing extra subsidies for low-income beneficiaries — both of which are features of the Affordable Care Act, the new health care law the Republicans want to repeal.

Next: Ryan Plan details. >>

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."

Among other proposed fixes to Medicare financing: adding to the trust fund by a slight increase in the current 1.45 percent payroll tax; raising the age of eligibility above 65; cutting payments to health care providers; and allowing Medicare to directly negotiate lower prices for prescription drugs.

"These are all politically unattractive," Rother says, especially as the Republican leadership has drawn the line at any tax increase, including eliminating the Bush tax cuts for the highest income groups. "But," Rother adds, "something does need to be done."

What of Ryan's contention that nothing in his plan would change Medicare for people now over age 55? Not wholly true, experts say.

Medicare and the larger health care system

More sweepingly, Rivlin and other analysts believe Medicare should be viewed as part of a flawed health care system that needs to run more efficiently as a whole. Robert Reischauer, president of the Urban Institute and a former director of the Congressional Budget Office, says to make Medicare more efficient "you have to change the system that provides health care for all of us. And that can't be done simply by changes within Medicare."

Central to that idea is altering its payment system by rewarding doctors and other providers for the quality of care they give instead of, as now, for the number of procedures they perform. This change — proposed for years by the Medicare Payment Advisory Commission, which advises Congress on Medicare financing — was written into the new health care law.

The new law also sets up an Independent Payment Advisory Board with the power to assess medical treatments and change reimbursements to health care providers to keep costs down. Republicans view the board as a means of rationing health care and often represent it as the Democrats' only "solution" for curbing costs, although the law specifically prohibits rationing.

The law aims to slow the growth of Medicare costs by giving health care providers smaller annual payment increases, a measure estimated to save $500 billion over 10 years without cutting benefits. If that happens — and Congress does not back down in the face of intense lobbying from providers — the Medicare trustees and Medicare's chief actuary, Richard Foster, predict a rosier future for the program's long-term solvency. They also say Medicare will consume far less of the nation's income than it would otherwise.

The new law "makes some very significant [cost] reductions in the program, and the [current] debate seems to totally ignore that fact," says Reischauer. Similarly, he says, the Ryan plan includes "many of those things that the Republicans argued against in the Affordable Care Act," such as health insurance exchanges.

What of Ryan's contention that nothing in his plan would change Medicare for people now over age 55? Not wholly true, experts say. In repealing the health care law, his plan would eliminate popular new Medicare benefits such as free health screenings and would no longer close the gap in prescription drug coverage known as the doughnut hole. And over time, beneficiaries in traditional Medicare would see their premiums rise as fewer people remain in that risk pool to share the costs of the program.

Next: 50 years of fighting about Medicare. >>

The political tug-of-war continues

In the end, Medicare's future inevitably comes down to politics rather than policy. Ryan's plan "is just another battle in a 50-year war," says Jonathan Oberlander, professor of social medicine and health policy at the University of North Carolina, Chapel Hill, and a historian of Medicare politics. "It's déjà vu all over again."

Ever since Medicare became law in 1965, Democrats and Republicans have fought ideologically over its design — with liberals favoring it as a government-run social insurance system and conservatives preferring a private insurance alternative.

That's why the GOP stoked opposition among older Americans to President Obama's health care law in 2010, just as the Democrats are now trying to put a match to Ryan's Medicare plan, which also has earned the wrath of a majority of seniors, according to recent polls.

Ever since Medicare became law in 1965, Democrats and Republicans have fought ideologically over its design.

Oberlander says Ryan's plan is the most radical change ever proposed because "it would eviscerate the value of Medicare" by requiring beneficiaries to pick up far more of the cost than they do now. It also would reduce choice by eliminating traditional Medicare as an option for future seniors, he says.

Currently three out of four beneficiaries choose the traditional program — in which they can receive health care from any provider that accepts Medicare patients, anywhere in the country — instead of the local or regional private plans that are offered as alternatives. These other plans, known collectively as Medicare Advantage, were promoted by Republicans during an earlier time in power in the hope that the lower costs and extra benefits they provided would wean beneficiaries away from traditional Medicare — allowing that program to "wither on the vine" in Newt Gingrich's famous phrase.

But the better deals were made possible only by the government paying the plans more for each enrollee than it did for people in the traditional program — and the Democrats, through the new health law, are reducing those excess payments as another way of lowering Medicare's costs.

The ideological divide yawns just as wide among think tanks that study health care issues. While most liberal think tanks say Ryan's plan is too extreme, their conservative counterparts say it doesn't go far enough.

So the philosophical war intensifies, but is unlikely to be resolved before the 2012 elections, if then. "My guess is that we're in for at least a decade of repeated clashes over Medicare," Oberlander says. "This isn't a settled issue."

Marsha Mercer is a freelance writer who covers political and policy issues in Washington. Patricia Barry writes about Medicare for the Bulletin.

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