If Americans who are embracing Rep. Paul Ryan's "Path to Prosperity" -- and that now includes Mitt Romney -- spent a few minutes reviewing a few recent research reports, they just might conclude that the Wisconsin Republican's plan to reduce the deficit might better be renamed the "Path to the Poorhouse" because of what it would mean to the Medicare program and many senior citizens.
Ryan's proposal, which will get new scrutiny now that Romney has made him his running mate, would end the current Medicare program for everyone born after 1956. It would replace Medicare with a system in which beneficiaries would receive a set amount of money from the government every year to buy coverage from private insurers. That money would go straight into insurance companies' bank accounts, which would make them far richer and even more in control of our health care system than they already are.
While the amount of money beneficiaries would receive would depend on their health status, the average 65-year-old would get $8,000 under the Ryan plan in 2022, the year it would take effect. That's the amount the current Medicare program is expected to spend on the average 65-year-old that year. After 2022, the annual increase in the "premium support" payments would be based on the consumer price index (CPI). And therein lies one of the biggest problems for anyone hoping to live long enough to enroll in Medicare and stay alive for a few years.
Last month the government reported that the consumer price index had increased 1.7 percent between June 2011 and June 2012, meaning we've been paying on average 1.7 percent more this year than last year for goods and services. The cost of medical care, however, shot up 4.3 percent -- more than two and a half times the CPI. And that was not an aberration. The cost of medical care has been rising faster than the cost of just about everything else in this country for years. That's one of the reasons why private health insurance premiums have been increasing so rapidly. That and the fact that insurance corporations have to report a big enough profit every quarter to satisfy their shareholders and Wall Street analysts.
Health insurance premiums rose nine percent in 2011 to an average of $15,073 for an employer-subsidized family plan, according to the Kaiser Family Foundation. Over the past 10 years, premiums have increased a "whopping" (Kaiser's word) 113 percent, much faster than wage increases and general inflation. So you can see what almost certainly would happen to Medicare beneficiaries beginning in 2022: They would have to shell out more and more money out of their own pockets every year just to cover the premiums their private insurers would charge them.
That's bad enough, but consider this: Health insurers began implementing a strategy several years ago to move all of us into high-deductible plans, meaning every one of us will soon be paying (if we're not already) thousands of dollars of our own money for medical care before our insurance company will pay a dime. Insurers adopted this strategy because they have failed miserably at controlling health care costs. If you can't control those costs, the only way you can make Wall Street-pleasing profits if you're an insurer is to keep hiking premiums and shifting more of the cost of care to policyholders.
Under the privatized Medicare program Ryan envisions, the effect of that cost-shifting strategy would be disastrous for the growing number of senior citizens who are finding that every year they have less and less money to make ends meet.
Almost half of Americans now die with virtually no financial assets, according to a recent study by economics professors at Harvard, MIT and Dartmouth. They found that 46.1 percent of Americans are now dying with less than $10,000 (19 percent die with no financial assets at all) and that many rely almost entirely on Social Security benefits for support. Not surprisingly, those people are disproportionally in poor health.
"With such low asset levels, they would have little capacity to pay for unanticipated needs such as health expenses or other financial shocks or to pay for entertainment, travel, or other activities," the professors wrote.
Those findings are not so surprising when you look at other recent measures of Americans' wealth and our ability -- actually, our inability -- to save money. The Federal Reserve reported in June that, after adjusting for inflation, median family income fell to $45,800 in 2010 from $49,600 in 2007. The recent economic crisis also took a big toll on median home equity, which fell during the same period from $110,000 to $75,000, and family net worth, which plummeted 40 percent from $126,400 to $77,300.
For the relatively wealthy Americans lucky enough to have a 401(k), most of their account balances are not nearly high enough to be of significant help when they retire. According to Fidelity Investments, the country's largest 401(k) administrator, the average account balance among its customers at the end of June was $72,800, which is down 2.4 percent from March and about the same as it was in June 2011. And balances in Health Savings Accounts are also low -- averaging just $1,494 in 2010, according to J.P. Morgan.
So one has to wonder how Messrs Ryan and Romney think making our senior citizens pay a lot more for care under a privatized Medicare program could even remotely be a Path to Prosperity for most of us. Could it be that they're not thinking -- or even caring -- about most of us but about people who, like them, have such big 401(k) accounts they'll be able to do just fine in their golden years regardless of how Medicare is structured?
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