July 1 2011

Unhappy Birthday Medicare

Hadley Heath

Today - July 1 - marks the 45th anniversary of Medicare's implementation.  Signed into law on July 30, 1965, the program became active on July 1, 1966, when for the first time senior citizens could use their new Medicare cards.

Now Medicare is at the center of a hot debate, because the program has simply become unaffordable.  Soon, 75 million baby boomers will retire and add to the Medicare rolls, and the economic downturn of recent years has left us with lower employment levels, and therefore reduced revenues for the Medicare program.

Like a lot of young Americans, I see this debate from two angles.  First of all, I love my grandparents, who are on Medicare, and my parents, who will reach Medicare age in the next decade or so.  That makes it important to me that Medicare remain stable enough to provide my family members with the benefits they expect.  It concerns me that many doctors don't want to see Medicare patients anymore, because Medicare's reimbursement rates fall below market rates and put doctors in a bad situation.

On the other hand, I see the deduction on each of my paychecks that sends part of my salary to the Medicare program.  I ask myself: Will the program be there by the time I reach 65 years of age?  Will I ever benefit from the taxes I paid into this program?  Medicare faces an unfunded liability of $24.8 trillion, and that's good reason for me to be doubtful about the sustainability of the program.

In response to these problems, policymakers on the Right and the Left have offered solutions.  With the passage of the Affordable Care Act (ACA) in March 2010, the Left showed us where they stand.  They cut $491 billion from Medicare, and then created a 15-member board of bureaucrats, called the Independent Payment Advisory Board (IPAB), who would be charged with reducing Medicare's growth rate. 

On the Right, Rep. Paul Ryan introduced his plan to save Medicare, which would involve repealing the ACA, and would put more control into the hands of individual seniors, who would receive Medicare payments, with a list of guaranteed coverage options from which they could choose.  His plan would also include tort reform and a 10-year fix to the reimbursement rates doctors receive, to make it easier for beneficiaries to access care. 

Clearly, both ideas, "ObamaCare" and Paul Ryan's plan (the Path to Prosperity, or PTP), would reduce spending on Medicare.  But there are key differences.  Forbes blogger Avik Roy has an excellent analysis of these differences: 

So the critics are correct: while both Obamacare and PTP seek to significantly lower the growth of Medicare spending, PTP's targets are more aggressive. Then again, Obamacare doesn't balance the budget or pay off the debt. It would be interesting to see how much it would cost PTP, in deficit-reduction terms, to use Obamacare's target growth rate structure.

A key difference between PPACA and PTP is the method by which each reduces Medicare spending. PPACA cuts payments to hospitals and doctors, which will force many doctors out of the health care system, reducing access to care for seniors in much the same way that Medicaid does.

On the other hand, PTP places control in the hands of seniors. Retirees under PTP will be incentivized to reduce wasteful health spending by shopping for insurance plans that contain the benefits they most want. This patient-centered approach is far more appealing.

On Medicare's 45th birthday, can we choose the common sense idea, and save the program from bankruptcy, bureaucracy, and rationing? 

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