The New Health Dialogue

Hot on the heels of Congressman Paul Ryan's new budget proposal, the Congressional Budget Office has released its review of the plan, and it's none too rosy. Their prediction? Higher health care costs for Medicare beneficiaries, and reduced access to Medicaid.

“Under the proposal, most elderly people would pay more for their health care than they would pay under the current Medicare system.” (See the full report here)

On Tuesday, Republicans in the House of Representatives released a new 2012 budget proposal. Optimistically titled the “Path to Prosperity,” this proposal has profound implications for the future of the American health care system. The brain child of Rep. Paul Ryan (R-WI), Chairman of the House Budget Committee, the plan cuts $5 trillion from projected future deficits, largely attributed to cuts in federal health care spending through a significant restructuring of the Medicare and Medicaid programs.

Rep. Ryan would make several significant changes to Medicare intended to dramatically reduce government spending on the program.  Instead of the current model of direct government reimbursement to providers, the proposal would largely privatize Medicare, providing premium support payments of up to $8,000 annually to beneficiaries, who would then purchase a private insurance plan. This “voucherization” of Medicare kicks in during 2022, meaning anyone presently under the age of 55 would no longer be eligible for traditional Medicare coverage.  Each year after 2022, the age of eligibility would increase by two months until it reaches 67 in the year 2033.

With regards to Medicaid, the Ryan proposal replaces federal Medicaid matching payments to states with fixed sum block grants beginning in 2013. This allows states to independently set their Medicaid program requirements and enrollment criteria, dismantling what Ryan refers to as the current “one size fits all approach.” The benefits of this flexibility, however, may come at a cost, according to the CBO.

“Even with additional flexibility, however, the large projected reduction in payments would probably require states to decrease payments to Medicaid providers, reduce eligibility for Medicaid, provide less extensive coverage to beneficiaries, or pay more themselves than would be the case under current law.”

The CBO estimates that the Ryan proposal would nearly triple health care costs paid by Medicare beneficiaries by 2030, compared to what they would have paid under the present system. The CBO also estimates that not only will significant costs be shifted to Medicare beneficiaries, but also significant financial risk:

“Although the uncertainty in future federal spending on health care would be lessened under the proposal, that uncertainty would be transferred to future beneficiaries. If the volume, complexity, and costs of medical services turned out to be greater than expected, future beneficiaries would pay higher premiums and cost-sharing amounts than are currently projected.”

With senior citizens already spending so much of their limited (and often fixed) incomes on health care, increasing the economic burden of paying for increasingly expensive medical care comes across as untenable and likely unaffordable. 

Another area of concern in the Ryan budget is that it ties increases in premium support payments to inflation (approximately 3 percent annually), while the cost of medical care historically has increased at a much higher rate.  Unless a mechanism is put in place to control the rate of increase of medical costs (which the bill does not include), the increasing discrepancy between the cost of care and the value of the vouchers will be shifted onto the backs of beneficiaries.

Concerning the Medicaid reforms, many in the health policy community have expressed concern that block funding provided without accountability for achieving baseline goals—such as minimum benefits or enrollment—would likely degrade benefit quality and push large numbers of patients out of Medicaid entirely.  While this may successfully control short-term Medicaid expenditures, it is likely that states will face higher total health care costs as the uninsured continue to clog emergency rooms for the treatment of the preventable, predictable, acute end results of unmanaged chronic conditions.

“The Path to Prosperity,” by all counts a bold proposal, comes as the first significant Republican alternative to the health reform model enshrined in the Affordable Care Act. Though highly unlikely to pass through the Democrat-controlled Senate and a certain presidential veto, this bill can be a starting point for much needed broader discussion on deficit reduction and entitlement reform.