The House Republican Budget Plan Destroys Medicare and Makes Health Care Unaffordable for Beneficiaries

On April 6, 2011, the House Budget Committee passed a budget proposal for Fiscal Year 2012 that would destroy the Medicare program and dramatically increase health care costs for America's seniors, especially future retirees. Chairman Ryan's plan privatizes Medicare and achieves savings by shifting costs to Medicare beneficiaries.

Raising Medicare's Eligibility Age

In addition to privatizing Medicare, the Ryan budget would increase the age of eligibility for Medicare from 65 to 67 by increasing the age two months per year from 2022 to 2033.

Privatizing Medicare

Beginning in 2022, Medicare would be converted from a program providing guaranteed benefits to a program providing vouchers to purchase private insurance. When people become eligible for Medicare beginning in 2022 they would not enroll in the current Medicare program. Rather they would receive a voucher, also referred to as a premium support payment, to be used to purchase private health insurance.

Chairman Ryan's proposal establishes a Medicare Exchange made up of competing private insurance plans from which Medicare beneficiaries would choose to purchase insurance. Although the government would set standards for the plans, benefits and premiums could vary. It is also unclear whether or not private plans would choose to participate - in the past, they did not want to enroll older people - or would ration care if they did participate in order to increase their profit margins.

The amount of the voucher would be increased each year by an amount that reflected the increase in the consumer price index for all urban consumers (CPI-U) and the age of the enrollee. In addition, the amount of federal assistance a person receives would be based on income and health status. However, the amount the federal government would pay (voucher) would grow less rapidly than health care costs and would become increasingly inadequate over time. The Congressional Budget Office (CBO) estimates that seniors would pay much more for their health care under the voucher plan than under the current Medicare program.

Medical savings accounts (MSA) would be established for low-income Medicare beneficiaries, those currently eligible for both Medicare and Medicaid. Rather than receiving guaranteed health care benefits, low-income Medicare beneficiaries would receive a fixed amount of money to pay for their health care expenses. The annual contribution to MSAs, would be indexed to the CPI-U rather than to the growth in health spending.

Medicare Beneficiaries 55 and Older

Beneficiaries 55 and older would be able to remain in traditional Medicare, with the option of converting to the new voucher program in 2022. The Ryan plan intends to keep premiums to what they would be under current law through a "hold harmless" provision. Whether or not this happens, it is likely that costs will increase to the federal government as the pool of beneficiaries in Medicare becomes increasingly older and sicker.

Government Relations and Policy, April 2011