Medicare: Saving Money Or Shifting Costs? At the heart of the Republican plan is a proposal to give everybody in the program a subsidy to buy private health insurance. Its supporters say it would reduce health care spending. But critics contend it allows the government to spend less on Medicare by making patients pay more — potentially a lot more.
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Remaking Medicare: Saving Money Or Shifting Costs?

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Remaking Medicare: Saving Money Or Shifting Costs?

Remaking Medicare: Saving Money Or Shifting Costs?

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Congress is in the middle of a budget debate, and a big part of that debate is the budget plan already passed with the votes of Republicans in the House of Representatives. The proposal envisions major changes to both the Medicare and Medicaid health care programs, so we've asked NPR's Julie Rovner to look at how the changes might work if they were passed into law. She begins with Medicare.

JULIE ROVNER: The heart of the House budget plan for Medicare is to give everybody a pot of money every year instead of the government-run health insurance they get now. Well, it's not really a pot of money. It's actually a subsidy they could only use to buy private health insurance.

Wisconsin Congressman Paul Ryan, who wrote the plan, says it would make Medicare just like the health insurance he gets as a member of Congress. He even read from the federal worker health insurance handbook during the budget debate.

Representative PAUL RYAN (Republican, Wisconsin): Look at all these plans we get to choose from: Kaiser, Aetna, Humana, Blue Cross, Blue Shield, Coventry -pages and pages of choices and options. This is what we're talking about.

Mr. AUSTIN FRAKT (Boston University): It's not at all what you'll have.

ROVNER: Austin Frakt is a health economist at Boston University. He says one key advantage of the health plans available to members of Congress is that the subsidies they get to pay for their health insurance premiums keep up with rising health care costs.

Mr. FRAKT: The government keeps paying a proportion of the premium that's not necessarily identical to what it is today, but it keeps pace, it doesn't erode over time.

ROVNER: But that's not how Congressman Ryan's Medicare proposal is designed. Under his plan, the amount you'd get to buy insurance would only go up as fast as inflation and the rest of the economy. And Frakt says that could be a big problem. Health costs tend to rise much faster, sometimes twice as fast, as overall inflation.

Mr. FRAKT: So that difference means that the subsidy is kind of riding along going up at a very slow rate, and healthcare costs are going way up, and premiums reflect healthcare costs, so that entire difference is shifted to beneficiaries.

ROVNER: In other words, Ryan's plan allows the government to spend less on Medicare by making patients pay more, potentially a lot more. In fact, says Frakt, eventually Medicare patients might be paying so much - and the government contributing so little - that Medicare, which provides basic health coverage to virtually all of America's seniors, will be little more than a memory.

Mr. FRAKT: Over time, the involvement of Medicare in paying for healthcare costs is a smaller and smaller share - beneficiaries are paying more and more, and basically Medicare is just phased out. It's gone.

ROVNER: That's a pretty dramatic statement, but Democrats are in basic agreement that Congressman Ryan's plan would essentially end Medicare in its current form and shift healthcare costs to seniors and the disabled. And they don't like the idea. Here's President Obama at a town hall meeting in Virginia.

President BARACK OBAMA: I mean, it's not hard to save the government money if you're willing to just say, here, you pay for it. That's not a solution.

ROVNER: Still, Congressman Ryan and his supporters say their plan doesn't just shift costs, that there are elements that actually would reduce healthcare spending. For example, Michael Cannon of the libertarian Cato Institute, says having people spend their own money, rather than the government's, helps.

Mr. MICHAEL CANNON (Cato Institute): They'll be cost conscious consumers, they'll choose economical health plans, they'll put downward pressure on prices, because they will get to see the savings.

ROVNER: At the same time, Cannon says, more competition within the healthcare industry can also hold down prices.

Mr. CANNON: Because in order to capture the business of those cost-conscious consumers, health plans, providers, will have to find ways cut costs while improving quality.

ROVNER: So far the Ryan plan is barely more than an outline. And it's going nowhere in the Democratic-led Senate. But it's an important marker in the emerging Medicare debate. And that debate comes with more than a few political perils. Medicare clearly needs some kind of fix to withstand the onslaught of 78 million baby boomers. But so far, public opinion polls show that neither Republican nor Democratic voters favor any big changes to the program.

Julie Rovner, NPR News, Washington.

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