Granny and the Cliff

There has been much talk of the two Presidential candidate’s approach to Medicare. One view has the Ryan proposal pushing granny off of a cliff. The other view is that Obama’s plan ignores granny as she speeds downhill toward a cliff. The question is whether there is any clear plan that would prevent the elderly from falling off the cliff of financial ruin?

Medicare was created in 1965 as government sponsored health insurance for seniors over 65. Over the years it has evolved into four parts: Parts A, B, C, and D. Part A is Hospital Insurance (HI), which pays for inpatient care. It is funded through the HI Trust Fund, which is the recipient of all Medicare payroll taxes. Part B provides supplemental medical care, such as doctor’s visits and certain outpatient services and is paid for by a monthly premium paid by the beneficiary and subsidized with contributions from the General Fund. Part C is also known as Medicare Advantage, is an alternative to traditional Medicare which offers private insurance options as alternatives to Part B. Medicare Part D is the prescription drug benefit program, which provides co-payments for certain prescription drugs.

A 2012 CBO analysis shows that Medicare is on an unsustainable path. The HI trust fund is paying out more than it takes in every year in the next decade. The Fund’s total worth goes from $245.7 billion in 2011 to $67.6 billion in 2022. The share of Medicare funding that comes from the government’s General Fund increases from $272.1 billion in 2011 to $476.6 billion in 2022. Overall Medicare spending doubles. It goes from $565.3 billion in 2011 to $1.0581 trillion in 2022.

The PPACA (Obamacare), which was included in the 2012 CBO analysis, has several provisions addressing Medicare. The law creates an Independent Payment Advisory Board to make changes in Medicare payment rates. It limits annual payment increases for certain providers, and modifies the high-income threshold adjustment for Part B premiums. It also imposes a new Hospital Insurance tax for high-wage earners and a new Medicare tax on net investment income. Additionally, the law adjusts payments to physicians and hospitals for treating readmissions related to potentially preventable conditions.

It also creates funding for several different pilot programs to examine new forms of care and different systems of payment. One example of this is a program to bundle payments for physician, hospital and post-acute care services with the goal of tying payments to quality of service.

The plan also addresses the Medicare Part D “donut hole” by providing discounts off the price of brand name drugs to phase out the coverage gap by 2020. Additionally, the PPACA eliminates copayments for certain preventative care services, such as immunizations and obesity counseling.

The plan outlined in Ryan’s House of Representatives 2013 budget would transform the current Medicare structure into a system of premium support. Various insurance plans would put in competing bids to provide health insurance. The current Fee-for-Service Medicare system would be one of the plans offered. All of the plans would be required to offer, at minimum, the current services offered by Medicare. The amount of premium support the Federal Government would provide would be based on the second lowest costing plan. If a beneficiary chooses a more expensive plan, they would be responsible for paying the additional premium. If they chose the least expensive plan, they would receive a check for the difference.

This plan would only go into effect for people currently aged 55 or younger (reaching 65 in 2023 or after). The plan also requires any plan competing in the bidding process to offer their plan to all Medicare beneficiaries, to prevent high need or expensive patients from being excluded. They cannot deny coverage based on pre-existing conditions or community rating. The plan would also provide additional subsidies to low-income seniors.

Basically, the Obama plan is to control costs by adjusting payments to health care providers and to fund pilot programs to find new ways of health care delivery. The Romney/Ryan plan involves controlling costs through changing the way the government funds the Medicare program and creating greater competition between private and public health insurance options. Both plans limit the growth of Medicare spending, but to what degree is yet to be seen. Reduction in services or access to care under each plan is also yet to be proven.

Additional Resources

Overview of the Medicare Program:

2012 Annual Report of the Board of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds (Medicare Parts A and B):

Congressional Budget Office 2012 Medicare Baseline:

Congressional Research Service Medicare Provisions in the PPACA:

Ryan House of Representatives FY 2013 Budget:


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