Lee Goldberg, National Academy of Social Insurance
Representative Paul Ryan, chairman of the House Budget Committee, yesterday released a plan entitled Path to Prosperity that would fundamentally restructure Medicare, the program that has provided health care and financial security for America’s elderly and disabled population since 1965.
While the Ryan plan lacks the specifics required in the legislative process, the proposal would end Medicare’s basic guarantee of access to care. Ryan would replace the practice of having the federal government reimburse providers for covered services with a system providing limited support for beneficiaries to enable them to purchase coverage from private insurers. The federal government would pay a health plan a set amount toward the cost of the premium; if the federal subsidy is insufficient, it would be up to the Medicare enrollee to cover the difference. Larger subsidies would be provided to lower-income beneficiaries and to those with greater health risks; subsidies would grow over time, but at a lower rate than medical inflation. With the subsidy covering a smaller share of the premium over time, Medicare beneficiaries would either have to pay more or buy a less generous plan. As the Congressional Budget Office (CBO) notes, Ryan’s plan would raise the total cost of health care for Medicare enrollees by 25-45%. The Ryan plan is essentially a cost-shifting approach to long-term deficit reduction.
Given Ryan’s reliance on private insurance, it is also worth noting that the Medicare program was created as a response to a serious problem: in 1963, two years before the creation of Medicare, only 56% of seniors had even limited hospital insurance coverage, as compared to 75% of people under age 65. As a study panel of national experts convened by NASI noted in its 1999 report, Medicare and the American Social Contract, the program was designed as a form of social insurance, funded in part by mandatory contributions from wage earners and employers, with benefits paid from public funds earmarked for that purpose; as a social insurance program, Medicare pays benefits to participants regardless of health or economic circumstances. It is a program specifically designed to protect individuals against the risk of out-living one’s savings or the risks posed by the cost of expensive new medical technology. Ryan’s proposal emphasizes the importance of preserving the social contract, but his proposal fundamentally alters its current terms.
Medicare as presently structured accommodates private health plans, and we would do well to heed past concerns that have been raised about radically altering that relationship. A 2003 NASI report, The Role of Private Health Plans in Medicare, noted that “defining an appropriate role of private health plans for the elderly and disabled does not require that the Medicare program be remade in the image of the private market for employer-based insurance.” The report noted that Medicare beneficiaries have “needs, circumstances and capacities that differ in important ways from those of working age adults.” No one denies that Medicare can and should be strengthened, but policymakers need to find ways to contain costs and improve quality of care without changing the fundamental nature of the program.