Health Insurance

What Do Republicans What To Do With Medicare

By David Krug David Krug is the CEO & President of Bankovia. He's a lifelong expat who has lived in the Philippines, Mexico, Thailand, and Colombia. When he's not reading about cryptocurrencies, he's researching the latest personal finance software. 9 minute read

U.S. healthcare prices will likely play a major role in the upcoming vote. Both major political parties agree that measures must be done immediately to decrease the share of GDP spent on healthcare, but they do so from quite different vantage points, with very different proposed solutions.

In particular, as both parties compete for the votes of voters 65 and older, the future of Medicare, the public health insurance program for such individuals, has become a contentious issue.

Medicare’s standalone costs, outside of healthcare as a whole, are higher than those of only Social Security and the military. According to the Congressional Budget Office, Medicare’s share of GDP in 2011 was 3.7%, and it is expected to rise to 6.2% by 2085. On September 8, 2011, President Obama told lawmakers that “millions of Americans rely on Medicare in retirement.” Millions more will join them in the years to come.

However, given the country’s aging population and the ever-increasing price of healthcare, current outlays are beyond what the system can afford. And it won’t be available when future retirees need it unless we progressively modify it while preserving existing seniors.

Baby Boomers will have a greater need for Medicare services for longer durations of time than earlier generations due to their higher age and longevity. Medicare is likely to accomplish one of two ways if major structural changes aren’t made soon:

  1. Cause an undesirable shift of wealth from younger to older generations, costing billions of dollars and hurting both generations in the process.
  2. Reduce the quantity and quality of care for the elderly in the future.

The Medicare System

Medicare is a health insurance program for those 65 and over, those receiving disability payments after two years, those diagnosed with Lou Gehrig’s disease or other forms of progressive neurodegenerative illness, and those who have experienced irreversible kidney failure.

There are presently about 43 million individuals who are covered by the legislation, and that number is expected to expand to 79 million by the year 2030. The law was passed on July 30, 1965. There are now two components to the program:

  • Insurance for Medical Care (Part A). This aids in covering the costs associated with receiving medical treatment in a hospital, skilled nursing facility, or hospice. To pay for Part A, all businesses and workers contribute a certain amount each year. If you or your spouse paid Medicare taxes when you were employed, you won’t have to pay a premium for Medicare Part A.
  • Additional Coverage (Part B). This section pays for in-office and emergency room visits, as well as ambulatory and at-home medical care. Medicare is supported by both the monthly premiums paid by Medicare recipients and by extra monies from the U.S. Treasury. When you reach 65, you are enrolled in Medicare Parts A and B by default, unless you choose to enroll in a different Medicare plan. Medicare Part B enrollees must pay a monthly premium of at least $99.90, with the actual amount varying by income level. You must also pay a yearly deductible of $140.

Medicare Parts A and B are fee-for-service insurance plans, so you can use any doctor or hospital you choose as long as they accept the Medicare rate schedule. Due to the sheer volume of people they insure, Medicare often offers providers the lowest reimbursement rates available. Medicare offers two options for enrollees to choose from.

  • Medical Insurance for Medications (Part D). Beneficiaries of the Medicare program have the option of enrolling in a Medicare-approved private prescription medication plan. Each plan’s formulary (the set of medications for which the plan will pay) and premiums are distinct from those of any other plan. The monthly premiums you’ll have to pay are determined on the plan in which you join.
  • Advantages of Medicare (Part C). Private health insurance firms also provide options for seniors to enroll. Parts A and B of Medicare, along with supplemental coverage like dental, vision, or an alternative prescription drug plan (Part D) are all included in these packages. Private insurance companies receive a set payment from Medicare but may add their own fees, restrict the doctors you may visit, and/or mandate referrals before you can see a specialist. The cost of a Medicare Advantage Plan is the same as that of Original Medicare (Parts A and B).

Medicare Supplement Insurance (sometimes known as “Medigap Insurance”)

Medigap coverage is meant to fill in the “gaps” left between Medicare’s out-of-pocket costs (deductibles, copayments, and coinsurance) and the total amount owed to the provider. To make it easy to compare the costs of different plans, Medicare authorizes all Medigap insurance companies and specifies the minimum benefits that must be supplied.

Medicare mandates that the insurer cap the amount a covered individual is responsible for paying out of pocket when Medicare does not pay for the whole cost difference. There is no cost to the government program Medicare for Medigap coverage; rather, the premiums are paid for by the insurer and the policyholders themselves.

Republican and Democratic Proposals

Medicare’s financial issue can only be solved by either bringing in more money to the program, cutting expenditures, expanding or reducing the services available, or some combination of the three. Most analysts agree that without significant reform, Medicare would run out of money as soon as 2024.

Both parties and their respective Presidential nominees have proposed changes to the Medicare programs that would only affect those under the age of 55, in an effort to avoid the political fallout that would result from affecting current Medicare beneficiaries or those who will become Medicare eligible over the next 10 years. Until the election is done and a winner is selected, though, neither side is providing specifics on how they plan to address the issue. 

Meanwhile, actuarial experts predict that, under its current budget, portion A of the program, which concentrates on hospital treatment, will become bankrupt between the years of 2016 and 2024.

Republican Platform & Position

To put it plainly, the Republican plan is to gradually switch retirees over from the current public defined benefit scheme to a defined contribution one where they are given a certain amount of money to go towards private health insurance.

The idea behind this plan is that increased competition among insurers for the business of elderly citizens would bring down healthcare prices while maintaining high levels of access to doctors and other providers.

The present health insurance offered to members of Congress, Senators, and other Federal Government workers is called the Federal Employee Health Benefit Program (FEHP), and this plan is meant to be very similar to that. Republicans argue that their healthcare plans, such as capping awards for medical malpractice and permitting the selling of insurance policies across state borders, will reduce healthcare costs nationwide, including those for Medicare.

Some Republicans have also advocated making Medicare eligibility age 67 rather than the current 65. Not all of the insurance benefits and premiums, or the government’s share of those costs, have been made public. Nonetheless, the plan’s guiding concepts appear to be:

  • Those who sign up for Medicare would continue to be protected by the program. That is to say, people would have the option of signing up for the original Medicare plan rather than a commercial insurance coverage.
  • The participating insurance firms would be required to offer benefits at par with or beyond those offered by Medicare.
  • By providing subsidies for seniors’ premiums (or government aid for private plans) equal to the amount paid by the second-lowest bidder, we can guarantee that every senior will have access to at least two “affordable” insurance options, with the understanding that “affordability” is relative.
  • It was agreed that premium support levels will be reviewed annually and adjusted accordingly. In an interview with CBS’s “Face the Nation” on September 9, 2012, Republican presidential contender Mitt Romney promised that Medicare’s federal funding will increase by as much as necessary to cover the rising costs of the second-cheapest health insurance option. The coverage supplied to Americans would presumably be at least as comprehensive as the coverage provided by the current Medicare program.

Criticism

Left-leaning critics argue that this strategy would put the burden of future cost rises on Medicare recipients who are already struggling to make ends meet. They argue that private, for-profit insurers are unlikely to be able to rein down Medicare spending since they have not been successful in lowering provider costs in private health insurance more generally.

Critics argue that this would lead to elderly being unable to purchase healthcare, bringing us back to the time when the Medicare program was established. With regards to the Republican proposal, President Obama has stated, “While we do need to lower healthcare costs, I’m not going to allow that to be an excuse for turning Medicare into a voucher program that leaves seniors at the whim of the insurance sector.”

The main argument against the Republican plan is that it does little to control rising healthcare costs, instead aiming to set a maximum amount that the federal government would pay for healthcare for the elderly. This means that in the future, seniors will have to pay a bigger percentage of their after-tax income on medical expenses.

The projected cost savings of vice presidential nominee Paul Ryan’s original voucher program have been questioned by conservative critics who point out that excluding current participants aged 55 and older from the program and continuing to offer the government-administered Medicare Parts A and B option in the future dilutes the original proposal.

Therefore, the Medicare Program’s future expenses and its detrimental effect on the nation’s finances will not be significantly reduced.

Democratic Party Platform and Position

The Affordable Care Act (ACA), also known as “Obamacare,” is the Democratic Party’s plan to fix Medicare. It contains a number of provisions meant to cut Medicare spending, raise Medicare revenues, innovate healthcare delivery, and create more efficient payment models to boost healthcare quality and efficiency while lowering costs.

It is anticipated that the expenditures for seniors would decrease as a result of the expansion of health insurance coverage to the general population and their earlier enrollment and participation in the free preventive healthcare offered by ACA.

The Democratic proposal would reduce Medicare spending by cutting payments to hospitals, insurers, nursing homes, drug companies, and other service providers while keeping the same benefits for seniors as the current program.

The Congressional Budget Office projects that the Affordable Care Act would save $716 billion over the next decade by reducing funding to hospitals and home health agencies and by eliminating the Medicare Advantage program. Medicare’s inpatient trust fund, without these changes, is projected to run dry by 2016, according to the program’s own analysts. These reductions will extend the life of the trust fund until 2024.

The Affordable Care Act established the Independent Payment Advisory Board, a 15-person group whose members are selected by the president and must be confirmed by the Senate before they can begin implementing their recommendations. Medicare expenditure as a percentage of GDP must be maintained below the rate of healthcare cost inflation, which is the responsibility of this committee.

Criticism

Conservatives argue that less money going to providers would lead to fewer options for seniors and lead to de facto healthcare rationing. Ryan, who is running for vice president, has said, “a board of 15 unelected, unaccountable bureaucrats in control of Medicare are obliged to slash Medicare in ways that would lead to denied treatment for present seniors.” Romney, a presidential contender, has stated that he will work to dismantle Obamacare if he is elected because he believes that “it costs too much” and that “the taxes and regulations are harming small business.”

By forcing more individuals onto private insurance through insurance exchanges beginning in 2014 and subsidizing the purchase of private insurance with public monies, liberal opponents of the Democratic approach regard the ACA as a “dangerous step in the privatization of healthcare in the U.S.” They argue that the universal coverage (for everyone over 65), administrative efficiency, and freedom to select one’s provider under conventional “uniquely American” Medicare should serve as a model for the whole healthcare system.

Bottom Line

To prolong the trust fund into the future, both Republicans and Democrats have recommended slowing Medicare’s expenditure growth in the long run and vowed to do everything they can to cut costs or raise new income to do so. Both parties have appealed to their core supporters in an effort to win over undecided voters ahead of the next election.

Whoever is elected president, however, will have three options to fix Medicare, according to Marilyn Moon, director of the health program at the nonpartisan American Institute for Research: “Either cut it out of providers in a different way,” “ask beneficiaries to pay higher premiums in various ways,” or “raise taxes in order to pay for it.” Another choice I would make is to reallocate and cut services so that as many people as possible have coverage without sacrificing quality of care.

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