The Democrats’ Version of Mediscare

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By Josh Barro

Paul Ryan’s nomination acceptance speech last week was less than forthright on a number of subjects. These included Medicare, where he attacked President Barack Obama for Medicare cuts that Ryan kept, and then some, when writing budget proposals for the House Republicans.

Now we look forward to another week of Medicare distortions, this time of the Democratic variety.

The real landscape on Medicare is this: Both parties want to cut Medicare. And people who expect Medicare benefits have good reason to believe each party’s Medicare plan will leave them worse off than under current policy. So, each side avoids addressing the impact of its own Medicare plan and focuses on attacking the other.

There are two key falsehoods in the Democratic message on Medicare. One is Obama’s oft-repeated claim that the Patient Protection and Affordable Care Act “won’t touch your guaranteed Medicare benefits. Not by a single dime.” That’s true only with a tortured definition of “guaranteed Medicare benefits.”

PPACA cuts Medicare spending by $716 billion, or about 10 percent over the next 10 years. It achieves these cuts in roughly equal parts by: eliminating subsidies for enhanced, private “Medicare Advantage” plans used by many seniors; reducing reimbursement rates to hospitals; and various other measures, including cutting payments to compensate hospitals for unpaid bills and payment rates for home health providers.

Medicare Advantage insurers use those subsidies to offer enhanced benefits or lower co-payments and cost sharing. Eliminating them will lead to reduced health benefits for some seniors.

Democrats might retort that these benefits are not “guaranteed,” but under current policy, they are: Medicare Advantage insurers today are entitled to payments that exceed those for traditional Medicare, and if that’s more than they need to replicate traditional Medicare benefits, they are required to plow the excess into benefit enhancements.

Reduced reimbursement rates will also reduce the quality of the Medicare benefit. Providers will absorb much of the impact of reimbursement rate cuts. But some will choose to exit the Medicare program.

Democrats who talk about reimbursement rates as an issue divorced from the level of the Medicare benefit should ask themselves: Are Medicaid’s reimbursement rates relevant in evaluating the quality of the Medicaid benefit? The reason Medicaid is widely viewed as bottom-tier insurance is that its low reimbursement rates are unappealing to providers. Similar reasoning should apply to Medicare, whose reimbursement rates will still be higher than Medicaid’s, but not by as much as before.

PPACA also includes some Medicare enhancements -- an increase in the prescription drug benefit and a no-charge annual wellness visit. But seniors are right to look at a 10 percent reduction in Medicare spending and see a net reduction in benefits.

The other falsehood we are likely to hear at the DNC is that the Romney-Ryan Medicare plan “could force new retirees to pay up to $6,400 more a year for health care.” As my colleague Ezra Klein tweeted last week, this is “not a fact.”

The $6,400 figure comes from an analysis of the Medicare plan in the budget House Republicans passed in 2011, which Paul Ryan wrote. This was indeed a bad plan -- I wrote at the time that it depended on a reduction in health care inflation that was “too ambitious to be plausible.”

But Ryan sharply changed his Medicare plan in the budget adopted this year, allowing Medicare benefits to grow much more quickly. Romney’s Medicare plan allows Medicare benefits to grow at GDP plus 0.5 percent per year after 2022, which is the same as the most recent House Republican budget and the same as Obama’s budget proposal.

All these plans cut Medicare spending much less than the plan that led to the $6,400 figure. While the candidates have very different visions on how Medicare should be structured in the future, their proposals for the amount of Medicare spending in the long term are roughly similar.

These distortions are unfortunate because there is a serious debate to be had about how Medicare should be reformed. How much of a role should private insurers play in the system? What are the pros and cons of reducing reimbursement rates and other price control-like measures? Both parties implicitly acknowledge that Medicare is getting much too expensive, and we should discuss honestly which ways to address that are least painful, without pretending they are painless.

After the election, I hope to see the two parties agree on a Medicare plan that takes a “yes, and” approach to cost control -- combining the Democrats’ top-down saving strategies like the Independent Payment Advisory Board with Republican ideas for competitive bidding that aim to push seniors to cheaper plans.

Until then, I expect Mediscare to continue from both sides.

Note: A previous version of the post erroneously said that PPACA's reimbursement rate reductions apply to doctors and hospitals. They apply only to hospitals. I regret the error.

(Josh Barro is lead writer for the Ticker. E-mail him and follow him on Twitter.)

Read more breaking commentary from Bloomberg View at the Ticker.


-0- Sep/04/2012 13:23 GMT