Reforming Medicare for the Real World
The status quo cannot last.
After House Budget Committee Chairman Paul Ryan unveiled a plan to overhaul Medicare, Democrats announced that despite some imperfections, it was a brave and thoughtful attempt to grapple with a problem that has been ignored for too long.
Just kidding. They said it was the worst thing they've seen since Sex and the City 2.
House Democratic leader Nancy Pelosi accused Ryan of offering "a path to poverty for America's seniors." Rep. Chris Van Hollen of Maryland said his proposal would not reform Medicare, but "deform it." The White House faulted Ryan for "placing a greater burden on seniors."
The chief outrage, in their minds, is his proposal to restructure Medicare for Americans currently younger than 55 while keeping the old version for older folks. Instead of guaranteeing a certain set of benefits regardless of cost, the government would pay a fixed premium so recipients could choose their own packages.
The amount provided for premiums would not shrink as time goes on. It would grow at the rate of inflation. Seniors wouldn't get less help than they do now; they just wouldn't get more.
This approach to health insurance is not really a radical concept. In fact, it's modeled on the same system used for federal employees, including members of Congress. You get a certain amount of money to cover your health insurance, and you can either choose any policy available for that amount or kick in a little extra to get better coverage.
Critics have a point when they say it's not as sweet a deal as the status quo. But the status quo is too good to last. Mark Pauly, a health care economist at the University of Pennsylvania's Wharton School, says of Ryan's plan, "It's not better than what we have now, but what we have now is not something we can have 20 years from now."
Why not? Because it will cost too much for the nation to afford. Medicare spending has been rising rapidly in recent years, and under realistic assumptions, it will more than double as a share of the economy by 2050.
The reason for Medicare's cost spiral is that the number of beneficiaries is growing—I'm looking at you, baby boomers—at the same time the cost of treating each one is going up. Absent substantial changes, Pauly has calculated, payroll taxes would have to triple to pay all the promised benefits.
I have news for people old enough to be thinking about retirement: Your children may love you, but not enough to be taxed into poverty. Ryan's detractors pretend we can go on enjoying the status quo indefinitely. But it's only a matter of time before we hit a fiscal wall, hard.
There are three basic choices. We can keep on just as we have in the past until the program collapses of its own weight. Or we can restrain costs by letting the federal government ration medical care. Some patients would have to wait months or years for procedures now taken for granted—and some wouldn't get them at all. Death panels, anyone?
Or we can switch from a guaranteed-benefit program to a "premium support" model. Everyone enrolled in Medicare would be allotted a certain amount of money to buy a health insurance policy, with higher amounts for sickly patients and extra help for poor ones. Insurers would compete to get their business. A retiree who wants a policy costing more than the government payment would have to fork over the difference.
As the Congressional Budget Office notes, "most elderly people would pay more for their health care." That's not a terribly enticing prospect. But we might as well stop pretending there's any alternative.
Eventually, someone has to pay for all the health care the elderly get. In the past, the cost has been passed on to younger workers. As the senior population expands and the labor force fails to keep pace, that trick will no longer be feasible. When a Ponzi scheme runs out of victims, it ends in tears.
Critics can offer different solutions, but there is no escaping the constraints at work here. The reason people will dislike what Ryan offers is not that he's needlessly cruel. It's that his plan confronts reality, and reality bites.
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