The Continuing Battle Over Medicare

The trust funds for the two largest federal programs, Social Security and Medicare, report annually on the two programs’ current and projected financial condition.  So we again learned that the expenditures for both programs are going to grow substantially over the next decade, mainly due to increases in the population above age 70 and the rising cost of health care.  By the mid-2030s, the large baby-boom generation is going to retire while generations with likely lower birth rates become wage earners.

Medicare costs are projected to grow from about 3.6 percent of gross national product (GDP) in 2010 to 5.5 percent by 2035.  The decline of hospital insurance fund reserves and the transfers from general revenue into supplementary medical insurance are already creating mounting pressure on the Federal budget.

For the sixth consecutive year, Medicare’s trustees issued a “funding warning," which indicated that general federal revenues will soon account for more than 45 percent of Medicare’s outlays.  In 2010 that level was in fact exceeded for the first time.  Now the law requires the President to respond to this warning.

The trustees concluded that the “projected long-run program costs for both Medicare and Social Security are not sustainable under currently scheduled financing, and will require legislative corrections if disruptive consequences for beneficiaries and taxpayers are to be avoided.”

As a solution to the problem, the Republican-controlled House passed the plan proposed by budget committee chairman Paul Ryan.  He wants to convert the federal share of Medicaid spending into a block grant indexed for population growth and inflation.  Most importantly, the Ryan plan repeals the President’s Affordable Care Act and privatizes Medicare.  In the future, the American people would have to choose from an array of private options.  The government would issue vouchers in amounts depending upon the recipients’ wealth and increasing in line with the gross domestic product (GDP) plus one percent.

To cut costs, Ryan proposes changing the payment system for health care by rewarding physicians and nurses for the quality of care they give instead of for the number of procedures performed.  An Independent Payment Advisory Board would assess medical treatments and adjust reimbursements accordingly.

The Ryan plan is likely to increase health care costs for older, disabled and chronically ill Americans.  Yet, Republicans consider the change necessary to curtail federal spending and decrease the national debt.  Ironically, Ryan wants to establish health insurance exchanges in the states and give low-income Americans larger subsidies, just as provided by the Affordable Care Act which he wants to abolish.  The American Association of Retired Persons (AARP) rejects the Republican scheme as “a stark choice--either end Medicare as an entitlement program or drive the country into bankruptcy.”

Alice Rivlin, who served on the president’s debt commission, calls the Ryan plan “severe” because it is “trying to solve the whole deficit problem with spending cuts alone.”  She suggests that “a good bipartisan plan will have some combination of market forces and regulation, spending cuts and revenue increases.”

Since liberals enacted Medicare during the Johnson administration in 1965, conservatives have opposed it as a “government-run social insurance system” and demanded “a private insurance alternative.”  According to the AARP Bulletin, health care policy expert Jonathan Oberlander of the University of North Carolina considers Ryan’s plan “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.”

When on May 24 Democrat Kathy Hochul, 52, won a surprise victory in a special House election in western New York state for a seat held by Republicans for all but 16 of the past 154 years, her emphatic endorsement of Medicare appeared to be the main issue in her favor.  "We will keep the promise made to our seniors who have spent their lives paying into Medicare,” Hochul stressed, “so they can count on health care when they need it most."