Editorial Board

Navigating the Romney-Ryan-Obama Medicare Bedlam

Mitt Romney accuses U.S. President Barack Obama of robbing Medicare of more than $700 billion. Obama claims the Republican presidential candidate would end Medicare as we know it. If you find this debate confusing, it’s no wonder.

In the spirit of not adding more spin and demagoguery to the bedlam, here are some important facts to keep in mind:

Much as it’s loved by seniors and revered as part of the 1960s social contract designed by President Lyndon B. Johnson, Medicare can’t keep going without major reforms. It’s 11 years away from going broke, according to the program’s trustees. By 2022, costs will almost double, to $895 billion from $485 billion this year.

The reforms Obama and Romney offer to slow Medicare’s escalating costs might seem like polar opposites, but they would cut the same amount of money from the program over the long run. The difference is in how Obama or Romney -- or Romney’s running mate, U.S. Representative Paul Ryan, whose Medicare plan Romney is so far endorsing -- would “save” Medicare.

Obama’s plan is more government-centric. He relies on the Affordable Care Act to do his heavy lifting. Over the next 10 years, the law lowers payments to hospitals, doctors and other providers while empowering an advisory board to root out unnecessary spending or ineffective treatments. The law also creates incentives for providers to control costs themselves by coordinating care, bundling payments and accepting payment-for-quality versus fee-for-service.


Ryan’s plan is more market-based, more radical and longer-term. As of 2023, he would move Medicare to a premium-support program in which beneficiaries choose between a private plan and traditional, fee-for-service care. All seniors would get a subsidy large enough to cover the cost of the second-least expensive plan in the market. To drive down costs, Ryan relies on competition among insurers.

Some of the confusion arises because, even within the parties, there is disagreement over how to fix Medicare and whether it is politically feasible. In the 2010 midterm elections, many House and Senate Republicans won their seats by promising to repeal Obama’s health-care law, citing its Medicare “cuts” as particularly onerous for seniors (60 percent of whom voted for Republicans). Those cuts aren’t really cuts at all, but reductions in projected spending, which will hit Medicare providers, not beneficiaries.

In any case, Ryan’s Medicare plan incorporates the very same Medicare savings -- the Congressional Budget Office last month pegged this at $716 billion over 10 years -- even as Ryan calls for repeal of the health-care law.

For its part, the Obama campaign glosses over the fact that Medicare is running on fumes and that Ryan’s premium-support plan wouldn’t take effect for 10 years. Anyone older than 55 would receive the traditional Medicare package seniors now have. Even after 2022, seniors could continue to choose old-fashioned Medicare, although an individual’s voucher might not cover all of the cost.

Even more misleading is Romney’s new attack ad against the Medicare savings in the health-care law. “So now the money you paid for guaranteed health care is going to a massive new government program that’s not for you,” the ad says, referring to the subsidies that the uninsured will get to purchase coverage through exchanges. It never mentions that the law improves Medicare by adding preventive services and filling a hole in the prescription-drug program.

If Romney walks away from the $716 billion in Medicare savings embedded in Ryan’s budget, as the Republican candidate is hinting he might do, then he would have no plan at all to slow the program’s growth in the next decade.

Medicare Advantage

Another way the Affordable Care Act lowers the Medicare budget is by trimming payments to private insurers’ Medicare Advantage plans, which are generally more expensive than Medicare’s because they lack its negotiating leverage. About a quarter of beneficiaries belong to Advantage plans, and they are billing the government 107 percent of the cost of traditional Medicare -- a 7 percent bonus. By eliminating the extra payments, the health-care-reform law saves $156 billion (out of the $716 billion).

Because Ryan’s premium-support idea builds off the Advantage concept, there’s reason to wonder whether it would actually save money. We just don’t know; the Congressional Budget Office says the plan is so complicated it can’t tell, though reduced access to care could result.

Democrats and Republicans agree on this much: Medicare must be put on a diet. Both Obama and Ryan would cap annual spending growth at gross domestic product plus 0.5 percent. From there, it’s easy to see how the Affordable Care Act and premium support might work hand-in-hand. If Obama’s law can push doctors to provide more effective care, track patient progress better, use less expensive technology and coordinate with one another more, then consumers could have more control over their own spending, so premium support would have a better chance of working.

Both Obama and Ryan would also guarantee a basic package of care and provide a taxpayer subsidy that can be used to purchase coverage on exchanges offering competing plans. But they are too busy talking past each other to notice.

    To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net .

    Before it's here, it's on the Bloomberg Terminal.