Romney-Ryan Medicare plan vs. Obama Medicare plan: Who's telling the truth?

They both are and they both aren’t.

I’ve never seen a week in health care policy like last week. The media reports have to be in the thousands, all trying to make sense of the furious debate between Obama and Romney over Medicare.

As someone who has studied this issue for more than 20 years, it has also been more than exasperating for me to watch each side trade claims and for the press to try to make sense of it.

This blog post is quite long because the subject matter is complicated. If you want to cut to the chase, see my conclusion and summary at the end of this post.

Allow me to list a few of the questions people are asking and give you my take on it.

Will current seniors suffer under the Romney-Ryan Medicare plan?
No.

Let me start by saying something that will likely surprise you. If I could be king for a day, I would prohibit anyone over the age of 60 from voting in this election. This election is really about the future and the big decisions on the table are about the long-term government spending and entitlement issues that should be made by younger voters who will have to pay for them and will benefit or suffer from them.

Those in their 60s and older are almost surely going to cruise to the end with the benefits they now have.

Whether its Obama’s Medicare plan, based heavily on the Medicare cost control board imbedded in his health reform bill (which doesn’t begin to impact hospital costs until 2020), or the Romney/Ryan Medicare premium support plan (that has no effect on anyone now over the age of 55), today’s seniors' benefits are insulated from this issue.

Medicare is already evolving. Both Democrats and Republicans want to see changes in the way Medicare pays doctors and hospitals (more for value and less for the volume of services) and that could impact the way providers treat people in the coming years. But in this sense, both sides present seniors with a similar future.

If you are over age 70, there is virtually no chance there will be any significant changes to Medicare benefits in your lifetime. Even if you are over 60, the chances that there will be any major structural changes to Medicare benefits as long as you are around are quite small. As bad off as Medicare is, both Republicans and Democrats have shown no inclination to fool with existing benefits for people now retired or close to retirement—this is about the future of Medicare for people now in their 20s, 30s, 40s, and 50s.

It is ironic that it is today’s seniors, who vote in larger numbers than the people in their 20s and 30s, that seem to be driving this as an election-year issue out of fear of what will happen to their benefits!

I found it fascinating to see a poll recently that said younger people are more supportive of the Romney/Ryan plan than today’s seniors! Apparently, the younger voters don’t think they are going to get anything like their father’s Medicare plan anyway (which is correct) and are happy to hear that Romney and Ryan have a plan to preserve something for them.

While of course I can't tell seniors not to vote, I would ask them to vote with only the best interests of their children and grandchildren in mind.

Can Medicare, as we know it be preserved for the next generation?
Absolutely not.

Whether we should preserve it for current seniors or not, it seems certain we will. Again, Obama’s cost board doesn’t start doing the heavy lifting until 2020. Romney and Ryan’s Medicare plan wouldn’t begin for ten years and only for those retiring at that time.

I will tell you that Romney and Ryan have taken the more courageous political stand—they say Medicare can’t be preserved and big fixes have to happen. Now, that doesn’t necessarily mean they have the right policy answer only that they are willing to face the problem.

Obama and the Democrats, by saying Romney-Ryan “would end Medicare as we know it,” have taken the safer and more conventional political route by not fiddling with the “third rail” of American politics that are the entitlement programs.

But Obama and the Democrats are being misleading when they say they can preserve Medicare “as we know it.” Yes, Democrats could preserve the traditional structure of Medicare—a defined benefit entitlement guarantee built around a universal pool everyone, rich and poor, is in. But to do that, they need to tell us just what benefit cuts, structural changes, and/or tax increases they are willing to implement. There is no way the current Medicare plan can be sustained without huge changes.

Obama and the Democrats are being disingenuous by trying to use the Romney-Ryan plan to scare voters without facing this tough issue in a direct way themselves.

The Republicans have been harping since the 2010 elections on the $700 billion cuts in Medicare that Obama and the Democrats used to help pay for the Affordable Care Act but doesn’t Ryan have the same Medicare cuts in his budget plan?
Yes.

Obama and the Democrats did cut $500 billion between 2010 and 2019 from what Medicare would have paid during that time when they passed the new health law in 2010 (those same cuts now add up to $700 billion between 2013 and 2022). It is important to note that these are not absolute cuts from the program but rather the slowing of Medicare growth. Before the cuts, Medicare was predicted to grow at an annual rate of 6.8% a year—after the cuts it is projected to grow at an annual rate of 5.6% during the same period.

So, while $700 billion is a lot of money, the Medicare cuts only amount to a very minor reduction in what providers get paid over the ten-year period—it does not directly reduce senior benefits or increase premiums. In fact, doctors--who face the risk of big cuts separate from the new health law--had no cuts. Hospitals agreed to modest cuts in exchange for seeing more patients with insurance. Medicare Advantage plans will see reductions in the payments they were getting that were already in excess of what Medicare pays itself for the same patients.

The Obama Medicare cuts were never going to materially hurt Medicare, as we know it.

Democrats also played games by double counting those cuts when they were allowed, under arcane federal budget rules, to both reduce the price tag for the new health law and extend the solvency of the Medicare program.

And, it is true that Ryan did assume those same cuts would continue over the life of his latest budget fix—which passed the House on a party-line vote. That is hypocritical of Republicans who blasted these same cuts in the 2010 elections. But Ryan supporters also argue that while he would continue those cuts, he would only count them once. Because he would repeal the Affordable Care Act, those cuts in future spending would be used solely to extend the life of the Medicare trust fund.

Ryan makes a credible point regarding how he would use the money. But, if Obama is hurting Medicare by reducing Medicare’s 10-year growth rate from 6.8% per year to 5.6% per year, then so is Ryan.

It is also important to remember that Ryan’s big premium support Medicare reforms would not begin for ten years. So these Medicare spending reductions, between now and then, have nothing to do with his “premium support” proposals.

Romney has now said that if he is elected he will reverse these Medicare cuts. OK, but he is going to have to find another $700 billion in federal spending cuts to replace them if he is going to hit the deficit reduction targets and Medicare trust fund goals in the House budget bill.

Both sides are making the same cuts and have really been playing games with this one.

Republicans are using the success of the Medicare Prescription Drug Plan as evidence that the market can control health care costs. Is this evidence on their side?
Not in any kind of clear cut way.

It is true that the Medicare drug plan costs are coming in way below what the Congressional Budget Office (CBO) said they would be in when the new benefit was created in 2003.

However, all drug costs (employer plans, Medicaid, traditional Medicare) have been coming in much lower that were expected. At the time the Medicare drug plan passed, prescription drug costs were exploding. Since then a number of factors, such as far greater use of generic drugs and fewer new expensive drugs in the pipeline, have dramatically reduced drug spending and the Medicare drug plan has benefited.

Medicare Part D costs are also coming in lower than expected because enrollment has been less than originally expected.

So, the evidence is very mixed and a lot more complicated making it a questionable piece of evidence in this debate.

Romney and Ryan say their plan will include the traditional Medicare plan as one of the options. But critics say there is a good chance Medicare will end up with the sickest seniors, while rich people are able to buy the private plans, thereby destroying the Medicare program everyone has enjoyed. Is this true?
Probably not.

The Romney/Ryan Medicare plan promises to continue the level of Medicare premium support seniors have today for the purchase of the second lowest cost plan in your market—be it private or traditional Medicare. All plans would have to provide at least the Medicare benefits you get today and the only cost to you would be what we know now as the Part B Premium. If a senior buys the lowest cost plan, there would actually be a cash refund for the difference. If a senior buys a plan costing more then the second lowest cost plan, the difference would be paid for out of the senior’s pocket.

Under the more detailed Wyden-Ryan Medicare plan with its better consumer protections, if a health plan gets a disproportionate number of the sick people, it gets more money to offset its costs—a device know as risk adjustment—that protects Medicare or any other plan. So, it is not clear to me how, if the traditional Medicare plan got sicker people, it would make it more expensive for consumers after these inter-plan adjustments.

Continued on next page.

The Romney/Ryan plan relies on the marketplace to control costs but there is no evidence that the market does a better job than government-run plans?
That is right, but Romney and Ryan are calling for a different kind of health plan market.

Democrats are right that there is not a lot of evidence that what we have done in the market so far will solve our cost problems. For example, about a fourth of seniors are now in Medicare Advantage plans but these plans have historically been paid more to cover seniors than the government paid to its own traditional Medicare plan. The rate at which health care costs have escalated from year to year has been lower in recent years for Medicare than for private health insurance for those under age-65--but we also know that providers often shift costs to private health plans to offset the lower Medicare reimbursement they get.

But, no matter which side you accept, overall Medicare costs are still unsustainable as more people retire. The status quo, for Medicare or for private insurance, is not an option.

Most health policy experts believe that we must fundamentally change the health care delivery system from the current fee-for-service system that largely pays for quantity, to one that pays for quality and cost control. The Democratic health care reform law has lots of pilot programs in it to test these new ideas. It is also likely that the new Medicare cost board, enacted as part of the new health law, will end up requiring providers to get their payments through these new payment programs in order to get costs under control.

Republicans also embrace these same ideas that rely on things like Accountable Care Organizations (ACOs) that pay providers a fixed payment for a population’s health care needs. These new payment systems would also take much more advantage of electronic patient management systems and administrative simplification. Both Republicans and Democrats generally agree with these efforts.

All of these ideas, generally accepted by Democrats and Republicans, have yet to be proven.

While most Democrats rightly argue that there is no proof the market has controlled costs, it is also true we have never tried a market like the one Romney and Ryan propose.

In Medicare Advantage, the private plans are reimbursed by the government with a fixed payment that is unilaterally determined by the government for each market. The result has been a system the private Medicare plans have too often just gamed—concentrate on the markets that have the best payments and make money off of them. More recently, health plans appear to have made better progress toward controlling costs but the use of private health insurance plans is still very controversial.

Romney and Ryan are now proposing a very different system where health plans have to bid their price in each market. They argue that competitive bidding will result in real competition in the market and, with consumers now having a greater incentive to shop their limited premium support payment from the government, costs can be controlled.

They see a senior market where health plans, including the traditional Medicare program, will have no choice but to work harder to manage costs by using all of these new devices and payment systems where millions of seniors will be intently looking for affordable care.

What do Obama and the Democrats propose as an alternative to Romney and Ryan?
The Democrats have taken the safer political path by letting the other guys make controversial proposals and saying little about how they see Medicare operating differently in ten years.

Democrats point to the Medicare cost control board, a part of the new health law, that gives an appointed board of experts the power to change the way providers are paid by Medicare—but not the power to change senior benefits or premiums. That board begins its work in 2015—but not until 2020 for the largest category of costs, the hospitals.

While Republicans criticize the Medicare cost board as nothing more than a “non-elected bunch of bureaucrats,” the fact is that the Congress—Republican or Democratic—has not shown the political courage to make the tough decisions to reform Medicare.

I am personally optimistic that the Medicare cost board could do a lot of good toward pushing the Medicare program to more sustainable payment models. But if the Board is to be successful in remaking Medicare into something that is sustainable, the Medicare it does drive us to will not be the old Medicare program as we have come to know it—and the Democrats claim they can preserve.

I am also personally optimistic that a system of competitive bidding and consumer choice could push the Medicare system towards more sustainability.

And, both are untried solutions and controversial among the experts.

Obama says that Paul Ryan’s Medicare plan will increase a senior’s health care costs by $6,400 a year. Is this accurate?
No. That estimate is based upon a Congressional Budget Office (CBO) estimate of an earlier version of Ryan’s plan.

Again, remember that Ryan's premium support plan would only impact those retiring in 2013, or later.

This year, Paul Ryan updated and improved his first Medicare premium support plan, offered in 2011. He increased the rate at which the federal Medicare premium support payment would grow and he opened his plan up by allowing traditional Medicare to continue to be offered.

In another change from the earlier plan, he would also guarantee that every senior would have enough money coming from the government to be able to buy the second lowest cost plan in their market. That plan (and all plans) would have to offer at least the current Medicare benefits and the government would pay the same share of that plan that government pays today. If the senior bought the cheapest plan, there would actually be a refund to the senior. If the senior bought a higher priced plan, the senior would have to come up with the additional premiums. The traditional government-run Medicare plan could be the cheapest, the second lowest, or a more expensive plan—no one can estimate that.

So, while all seniors would be assured that they could afford at least the two lowest priced plans on the same basis as Medicare subsidizes them today--at no increased cost to them, there is no way to tell which two plans they would be—other than to say these plans would have to offer at least the traditional Medicare benefits.

This was a big change from Ryan’s 2011 plan and President Obama should be doing any comparisons to the new version. The CBO has not yet done any similar estimates on the new plan.

Whose Medicare plan will work?
My sense is that either could work. It all depends upon how they are implemented.

I will suggest that if you put a conservative and a liberal, both of good will, in a room, gave both of them all the facts about Medicare and health care spending, what has and hasn’t worked in government and the market, and then asked them to come to a conclusion, the liberal would like the Democratic approach that relies on government and the conservative would come out on the side of consumer choice and markets.

We are, in a political sense, a left brain/right brain country. Conservatives have far more faith in market freedom and consumer choice and liberals have far more faith in the government and regulation. They will both look at the same set of facts and come out in a fairly predictable way.

Who should we believe? Who should I vote for?
In the end, trust your instincts.

When its all over, after you have read all of the confusing articles and been frustrated by all of the counter claims and political spin, I will suggest it will come down to your instincts. I don't see a reliable fact-based way to predict with anything close to certainty which philosophy would do the better job--we can't run both systems in tandem to find out!

Do you trust government more, or your own judgement and the market?

Whichever way we go, there will be no pure market or government approach. The market approach, even the one touted by Paul Ryan, will have lots of government oversight and consumer protections. Even in a single payer system, where government controls the insurance system, there will be choice when it comes to which provider you use and perhaps which insurance company you buy your supplemental insurance from.

It is also notable that both Paul Ryan and President Obama have called for eventually capping annual Medicare spending at the country’s rate of economic growth, plus one-half percent. They would both spend the same amount of money—less than the historic average rate of growth for the program—but manage that more finite amount of money very differently.

Government will always be involved in senior health care—very few seniors could afford to pay the actual per capita cost of Medicare by themselves. Medicare, at some level, will always be a social benefit—largely supported by the federal tax system with the sick and the healthy in some of form of common pool.

Anyone who says Republicans want to throw you to the market dogs is just trying to scare you. Anyone who says Democrats want to take your freedoms away and dump everyone into a Medicare program that will eventually look more like Medicaid is no better.

But both offer very different paths based upon their ideologies.

Generally, do you believe in yourself and the market to better manage health care, or in the need for government to protect your interests?

Should seniors have more personal responsibility for the cost and quality of their health care and be able to make very different choices in the range of health plans they buy, or should Medicare remain largely a government-managed program built around one kind of universal insurance both the rich and the poor have to share?

Just answer these questions and I think you will know for whom you will vote in November.

Since I think either approach could work, I plan to vote for the candidates that are, first, doing the best job telling the truth about what they will ultimately be forced to do and, second, who appear to me to have the best chance of actually implementing their plan in an effective way.

Elections matter. And, so should the truth about what needs to be done, an ability to get those reforms passed, and to make them work.

Robert Laszewski blogs regularly at the Health Care Policy and Marketplace Review.