The fiscal year 2014 House Republican budget resolution—released today by Rep. Paul Ryan (R-WI)—is strikingly similar to last year’s plan in its treatment of our nation’s Medicare program. The misguided budget proposes replacing traditional Medicare benefits for seniors with a voucher toward the premium of an insurance plan provided by a private insurer or Medicare starting in 2024.
As our analysis of last year’s nearly identical Ryan plan illustrates, House Republicans’ premium-support plan would not only create a death spiral—in which less-healthy beneficiaries leave the traditional Medicare plan, causing premiums to rise and resulting in more beneficiaries leaving the program, causing premiums to rise again—but it would also result in substantially higher premiums for seniors, forcing them to pay as much as $1,200 more each year by 2030, and as much as $5,900 more each year by 2050. As a Center for American Progress Action Fund report details, seniors will face steep increases in their health care costs during retirement under a Medicare premium-support plan. The first seniors hit by these changes could pay up to $59,500 more during retirement, with those who will be eligible for Medicare in 2050—and are currently 28 years old—paying up to $331,200 more.
These radical changes are unnecessary. Evidence is mounting that the growth in health care costs is slowing down, thanks in part to systemic changes that are underway. As a result, the nonpartisan Congressional Budget Office recently revised its projection for Medicare spending downward by $137 billion over the next decade.
Higher annual premiums for seniors
As in last year’s budget, House Republicans in this year’s budget propose using competitive bidding among insurers to determine the amount of the federal premium contribution. This contribution will be limited, however, to the growth in the economy plus 0.5 percentage points, which is substantially lower than the projected growth rate of health care costs after 2022.
Although the plan again fails to specify how the cap on Medicare spending would be enforced, converting all Medicare spending to vouchers suggests that the capped growth rate would be enforced by limiting the value of the vouchers provided to seniors. As a result, the vouchers proposed by the Ryan budget will become increasingly inadequate in their ability to help seniors purchase a health plan.
CBO’s analysis of last year’s Ryan plan estimated that if national health spending continues at its current rate, average Medicare spending per beneficiary will increase to $8,600 in 2030 and $17,000 by 2050. Under the Ryan plan, CBO projected that Medicare spending would fall to $7,400 by 2030 and $11,100 by 2050, leaving a gap of $1,200 in 2030 and $5,900 in 2050. In its attempt to control federal spending, the Ryan plan simply shifts these costs to seniors, who already spend at least 15 percent of their annual income on health care costs alone.
In addition to these costs, the Ryan plan would also raise systemwide health care costs for seniors. As more seniors moved out of traditional Medicare plans, Medicare’s ability to negotiate current provider prices would decline, leading to higher costs for seniors. Systemwide administrative costs and profits would also increase with the participation of more private insurers in the Medicare market.
Increasingly unaffordable health care costs in retirement for all
In a Wall Street Journal editorial written today, Rep. Ryan states that his plan protects and strengthens the Medicare program for current and future beneficiaries. A more careful analysis of the proposal, however, shows that this is false. The plan would instead increase costs for seniors at a devastating rate. (see Table 1)
In addition to the costs above, seniors wishing to stay on a traditional Medicare plan will likely be required to spend an additional $29,000 during retirement due to adverse selection. In this process, private plans—which have attracted healthier seniors since the mid-1980s—will continue to disproportionately enroll lower-cost beneficiaries. As a result, seniors needing the most care will be left in traditional Medicare, causing those premiums to rise. Although the Ryan plan would adjust the amount of the voucher for health status, available evidence indicates that this risk-adjustment mechanism would be insufficient to control costs of these premiums.
Under the Ryan plan, seniors will be forced to spend thousands of dollars more on health care during retirement. Those who are unable or unprepared for these dramatic increases will be forced to either reduce spending in other areas or forgo needed care.
Conclusion
While we must do more to lower the rate of our nation’s health care spending, we can create a higher-value health care system without shifting costs to seniors. Rep. Ryan challenges opponents of his proposal to suggest a credible alternative to reforming Medicare. We propose a better way forward. The Center for American Progress’s Senior Protection Plan includes more targeted solutions that seek to eliminate wasteful spending, reduce systemic inefficiencies, and improve the quality of care. These reforms are not limited to federal spending, and they address systemwide health care costs. They will offer true protection to both current and future seniors, improve the Medicare program, and ensure that federal savings are not realized at the expense of American families.
Emily Oshima Lee is a Policy Analyst with the Health Policy team at the Center for American Progress.