If you're one of the 50 million Americans on Medicare -- or one of the 77 percent who say Medicare is important to them and their families -- these are confusing times.
President Obama talked about Medicare at his inauguration arguing that "every citizen deserves a basic measure of security and dignity" and that government programs like Medicare "do not sap our initiative -- they strengthen us." But the President has also said that an "aging population and the rising cost of health care makes Medicare the biggest contributor to our deficit" and that he's "very open to compromise" to tackle the country's budget problems.
Economists and the pundits are weighing in too, serving up a bewildering clash of opinions on whether we should act quickly to reduce Medicare spending or wait, whether Medicare needs major changes or modest ones, whether the goal should be to make recipients more cost-aware or to push hospitals, doctors and drug and technology companies to reduce their costs (or both).
Even more confusing is that in some ways the situation is getting better. The growth in health care spending is slowing down for the first time in a decade, which eases the pressure on the federal budget. The Congressional Budget Office says spending on the two major federal health programs, Medicare and Medicaid, will be $200 billion lower than originally projected in 2020 because of this. But the government's overall health spending alone is still projected to nearly double (from $825 billion this year to $1.6 trillion in 2020). Medicare alone will cost more in 2020 than the government spent on all health care last year: some $867 billion.
So who's right? Should we start reforming Medicare now or wait, and what should we actually do? One problem for typical Americans is that the pundits and politicians don't actually offers a money-back guarantee that their ideas will work. Like so much in life, we'll have to make a judgment call based on the information available now and our own sense of what's practical and fair.
So in our view, it's time to start talking brass tacks because the battle of the quotables quotes isn't moving us forward. Let's look at just a few specifics courtesy of the Congressional Budget Office which has run the numbers on a whole bunch of proposals.
So what are some specific ideas for Medicare? How much money would they save? Are they sensible changes that will strengthen a program that most Americans think works pretty well, or would they would end up leaving millions of seniors sicker and more impoverished?
- What about raising the age for Medicare eligibility to 67? It would save more than $160 billion between now and 2021, and many experts believe that most people between 65 and 67 would either continue getting insurance from their employers or get it from the new insurance exchanges. The downside is that some older Americans will pay higher costs, and this idea only moves the expenses around. It doesn't do much to make healthcare more cost-effective or affordable.
- What about adjusting what recipients pay out-of-pocket? As anyone on Medicare knows perfectly well, it's not actually free. There are all sorts of deductibles and co-pays, outlays that really add up when someone has a serious illness. Suppose the whole thing was re-organized so there would be an annual deductible of $550 and 20 percent co-pays for services and procedures. The co-pays would stop when you got to $5,500 per year which sounds like a lot, but this would actually be an improvement for some patients since currently there's no real limit. Plus it would save more than $30 billion between now and 2021.
- What about having the government bargain hard with drug companies participating in Medicare drug plans? One idea checked out by the CBO would save about $112 billion between now and 2021, but it's complicated, and it might mean that companies would reduce their investments in finding better drugs? Plus would it give government too much power in this area?
- What about reforming malpractice? This wouldn't just apply to Medicare of course, and it address two concerns -- that rising malpractice premiums are driving up costs overall and that doctors and hospitals over-test and over-treat because they're afraid of being sued. According to CBO, reforming malpractice would mean more than $60 billion in deficit reduction between now and 2021. But suppose this idea back-fired and ended up reducing the quality of care and/or leaving patients with less protection when healthcare providers are careless or incompetent?
- Why don't we raise the Medicare payroll tax? According to the CBO, raising the 2.9 percent payroll tax by one percentage point would bring in a lot of money: $650.8 billion total by 2021, which is a significant dent in the program's costs. The downside, of course, is that it's a tax increase. That could be a drag on the economy, particularly since employers pay half of this tax. This is also a bigger burden on low- and middle-income taxpayers than on the wealthy, because the wealthy get less of their money from wages and more from investments, which aren't covered by this tax.
- What about switching to a voucher or "premium support" plan for Medicare? The plan proposed by Rep. Paul Ryan, R-Wisc., is the best-known version of this, but there are other versions. The essential concept is that seniors would get a government voucher to buy their own insurance on the open market. If they want to spend more -- or if the voucher doesn't cover the full cost -- seniors will have to pay the rest out of pocket. The CBO has estimated the latest version of the Ryan plan would have held the government's Medicare spending to 3.5 percent of GDP, compared to 3 ¾ percent under it's "baseline" scenario . But the tradeoff could be higher out-of-pocket costs for seniors (the CBO estimated an earlier version of the Ryan plan might cost them an additional $6,000 or more). Plus, it's very hard to scope out the costs of a plan like this, because it depends on how a plan is crafted and how much greater competition would affect health care costs, if at all. At this point, the exact tradeoffs of this just aren't clear.
Obviously we could go on, and you should. The couple of ideas here are just a beginning, but what they all have in common is that they have pretty sharp tradeoffs. You give up something significant to reduce the cost of Medicare: either in terms of choice, coverage, or cost to your pocketbook. And those tradeoffs have to be clear and specific before the public is asked to buy into any of them.
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