Medicare Budget Debate Comes Down to Who Does Trimming

This year’s debate over the future of Medicare comes down to who wields the knife.

Both political parties are proposing to cut the $500 billion-a-year health-care program for the elderly. They disagree as to how.

Republicans want to rely on the marketplace, saying competition can be harnessed to drive down costs. Democrats say a panel of experts, created in the Obama administration’s 2010 health-care overhaul, should decide how to wring savings from the program.

“There is no dispute over endpoints; it’s all about how you get there,” said former Congressional Budget Office Director Douglas Holtz-Eakin. “Who do you trust to get you there?”

The fight takes center stage as the U.S. House debates a budget endorsing Republicans’ vision for the half-century-old program. It will probably win adoption today after lawmakers dispense with several competing plans.

A bipartisan budget proposal based on recommendations of the heads of President Barack Obama’s debt commission was defeated last night on a 382-38 vote. Just 22 Democrats and 16 Republicans voted for the plan, modeled on the Simpson-Bowles deficit-reduction plan.

That’s barely one third of the lawmakers who signed a letter in November urging a budget-cutting supercommittee to adopt a plan similar to the one written by former Senator Alan Simpson and President Bill Clinton’s former chief of staff, Erskine Bowles.

Election Debate

The House budget plan is certain to die in the Senate, though it will continue to be debated in this year’s elections with Democrats accusing Republicans of plotting to end Medicare and Republicans casting the Democrats’ panel of experts as a rationing board.

“If the Republicans in Congress -- and their amen corner of Romney, Santorum and Gingrich -- if any one of them gets their hands on the White House, the keys of the White House, I promise you will see Medicare ended as you know it,” Vice President Joe Biden said last week in Florida.

The 60 Plus Association, an advocacy group representing seniors, has begun targeting Democratic senators in re-election races, including Jon Tester of Montana, with a TV ad dubbing the board a “Medicare IRS” that will “deny certain Medicare treatments so Washington can fund more wasteful spending.”

Need to Cut

The fight obscures the fact that lawmakers of both parties agree on the need to cut Medicare. The program is projected to double in size over the next decade with annual costs reaching $1 trillion by 2022.

Republicans, including House Budget Committee Chairman Paul Ryan, have been critical of Democrats for cutting $500 billion from the program over a decade as part of their health-care overhaul. Still, the House Republican budget written by Ryan retains the cuts.

Lawmakers of both parties propose caps on total spending, a fundamental change in how the open-ended program operates. They even agree on the limit, with each party calling for capping spending at economic growth plus a half percentage point.

Some details of their restructuring plans also are similar. Obama would set up so-called exchanges -- essentially, a marketplace -- where the uninsured younger than 65 could buy health-care coverage. Ryan’s budget plan would set up a similar structure, though for seniors.

Controlling Costs

“There’s more agreement here than meets the eye,” said Bob Bixby, head of the Concord Coalition, a Washington-based group that advocates for a balanced budget.

Where the two sides differ, and vehemently, is how to control costs.

The Republican plan would provide seniors with government subsidies to buy private insurance or to participate in Medicare, arguing that competition among providers would lower costs. They point to the federal government’s prescription drug program, which provides coverage through insurers competing for seniors’ business and where costs have been 40 percent less than anticipated.

“Why did Medicare Part D come in 41 percent below cost projections?” asked Ryan, a Wisconsin Republican. “Because it harnessed choice and competition. Name me another government program that came in 41 percent below cost projections.”

Footing Bigger Bills

Democrats say that approach won’t work, predicting the subsidies won’t keep up with rising health-care costs, leaving seniors footing bigger bills or forgoing care.

“The health-insurance market has never provided affordable care to seniors; that’s why Medicare was created to begin with,” said Representative Chris Van Hollen of Maryland, the top Democrat on the House Budget Committee. “The Republican proposal places all the risks and costs of increasing health- care prices on seniors.”

The reality is no one is sure what would happen. The Congressional Budget Office, responsible for gauging the potential effects on the plan, has said it can’t predict the outcome because the Republican approach would be so novel.

Democrats favor a 15-member panel called the Independent Payment Advisory Board that would be responsible for devising ways to cut costs.

“Somebody gets to decide what health care is covered,” said Senator Patty Murray, a Washington Democrat. “Do they want insurance companies making all the decisions?”

One Size Fits All

Republicans say the plan amounts to allowing the board to impose its one-size-fits-all approach on millions of Americans.

“Our budget empowers 50 million seniors to choose a plan that best suits their needs, rather than allow 15 unelected, unaccountable bureaucrats to do so for them,” said Representative Tom Price, a Georgia Republican.

The board’s influence could be limited. No one has been appointed to it yet, and the members must be confirmed by the Senate. What’s more, the panel’s recommendations would take effect only if lawmakers don’t block them.

So much of the dispute boils down to whom you trust, said Marc Goldwein, policy director of the Washington-based Committee for a Responsible Federal Budget.

“Either the government can do it or the private sector can do it, but it’s going to happen,” he said. “Somebody has got to make the decisions.”

To contact the reporter on this story: Brian Faler in Washington at 1919 or bfaler@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net

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