The political wrangling that threatened to shut down the government, averted by an 11th hour bipartisan deal to cut domestic spending by $38 billion for the balance of the 2011 fiscal year, is but a prelude to a much bigger battle: the 2012 budget and Congressional efforts to reign in spending on non-discretionary entitlement programs, including Social Security, but most urgently Medicare and Medicaid.
Soaring health care costs for the elderly are unsustainable. Medicare spending is growing at a rate of 7.2% every year–more than twice as fast as the economy’s growth rate. Of the government’s three health insurance programs — Medicare, Medicaid, and the Children’s Health Insurance Program — Medicare accounts for nearly two-thirds of the total, or $468 billion.
Fueling Medicare’s spiraling costs is a rapidly increasing population of seniors. Medicare provides health coverage to 46 million people over age 65 and on disability. This number is expected to double by 2030 as more boomers enter retirement, and as life expectancy rises.
According to the Congressional Budget Office, spending on Medicare and the three other mandatory programs will increase to about 15% of GDP in 20 years from roughly 10% currently. Upshot: a rising tide of red ink. By 2021, says the Government Accountability Office, Medicaid, Medicare and Social Security will together constitute 50% of the federal budget.
Clearly, the U.S. cannot allow health care costs to eat up an increasing share of the budget and crowd out other fiscal priorities. And so the House Committee on Budget, led by Chairman Paul Ryan (R-Wis.), has unveiled a plan as part of its Fiscal Year 2012 Budget Resolution that addresses the issue head on.
Coined “Path to Prosperity,” the resolution promises to slash $6.2 trillion in spending, including $4.4 trillion in deficits, from the President’s budget over the next 10 years. The CBO estimates that mandatory spending for health care would be cut to about 6% of GDP in 2030 and 2040 and about 5% in 2050.
The Ryan plan aims to achieve these numbers in large measure by remaking the government’s health care programs, starting with Medicare. To be sure, the plan makes no changes to Medicare benefits for individuals now in or near retirement. But those who turn age 65 in 2022 would choose from among guaranteed coverage options available through private insurers.
Medicare would provide a “premium-support payment”–a subsidy–to the health plan recipients. The payment would be adjusted so that wealthier beneficiaries would receive a lower subsidy, the sick would receive a higher payment if their conditions worsened, and low-income seniors would receive additional assistance to cover out-of-pocket costs. The budget resolution additionally converts the matching payments that the federal government makes to states for Medicaid costs under current law into block grants of fixed dollar amounts beginning in 2013.
Ryan’s blueprint also promises to cap non-economic damages in medical liability cases (thereby preventing “frivolous” litigation costs from being passed onto consumers); reinvests Medicare savings into the Medicare trust fund (rather than financing new healthcare entitlements); and revises the Medicare physician payment formula for the next 10 years.
The new formula would, the plan says, “fairly compensates physicians” who treat patients while providing incentives to “improve quality and efficiency.”
Additionally, Ryan’s plan guts a creation of last year’s healthcare reform law: the Independent Payment Advisory Board. As now constituted, IPAB will reduce Medicare payouts through formulaic rationing, restricting treatments to beneficiaries without regard to quality or patient satisfaction. The better way to control costs, Ryan suggests, is by offering patients a choice of plans (via a new Medicare Exchange); and by forcing providers to compete against each other. Moreover, payments to physicians and other providers for services provided under the traditional Medicare program would be restrained. States would have to “pay substantially more” for their Medicaid programs or “tightly constrain” appropriations for those programs.
In sum, Ryan’s proposal reigns in non-discretionary healthcare spending through cost-shifting: from the federal government to the states, the elderly and the poor. That trade-off might be more palatable if the Ryan plan controlled medical expenses that eat up a disproportionate share of the health care budget: high-tech procedures for terminally ill patients that, all too often, only marginally improve outcomes.
The Ryan blueprint is no solution to the nation’s burgeoning healthcare crisis. It should be sent back to the drawing board.