House Budget Committee Chairman Paul Ryan’s (R-WI) Budget Resolution for Fiscal Year 2013, H.Con.Res.112, which was approved by the House of Representatives on March 29, 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.

Privatizing Medicare with Vouchers/Premium Support Payments

The House budget plan privatizes Medicare and achieves savings by shifting costs to Medicare beneficiaries. Beginnin g in 2023, when people become eligible for Medicare they would not enroll in the current program which provides guaranteed benefits. Rather they would receive a voucher, also referred to as a premium support payment, to be used to purchase private health insurance or traditional Medicare through a Medicare Exchange.

The amount of the voucher would be determined each year when private health insurance plans and traditional Medicare participate in a competitive bidding process. The amount of the voucher would be what the second-least-expensive private plan or traditional Medicare agreed to accept to cover Medicare beneficiaries. Seniors choosing a more expensive plan would be required to pay the difference between the voucher and the plan’s premium, which could limit lower-income beneficiaries’ access to certain plans. Those choosing a less-costly plan would receive a rebate. Under Chairman Ryan’s budget proposal, the annual growth in Medicare spending is limited to gross domestic product (GDP) + 0.5 percent, a rate likely to be lower than the growth in health costs. If spending exceeded this amount beneficiaries would be subject to additional out-of-pocket costs because the amount the federal government provides for their voucher would be limited.

The Ryan budget proposal calls for private plans to provide benefits that are at least actuarially equivalent to the benefit package provided by fee-for-service Medicare. This gives private companies the ability to tailor their plans to attract the youngest and healthiest seniors, even if payments are “risk adjusted” to take health status into account, which would leave traditional Medicare with older and sicker beneficiaries. Their higher health costs could lead to higher premiums that people would be unable or unwilling to pay, resulting in a death spiral for traditional Medicare. This would adversely impact people age 55 and older, despite Chairman Ryan’s assertion that nothing will change for them, as well as people currently enrolled in traditional Medicare.

The Ryan proposal establishes accounts for low-income Medicare beneficiaries, likely those people eligible for Medicare and Medicaid, to use to pay premiums, co-payments and other out-of-pocket costs. However, it is unclear what the amount of assistance would be or if it would adequately cover out-of-pocket expenses. In addition, the plan applies current means-testing thresholds for Medicare Part B and D premiums for higher-income beneficiaries so that they would continue to pay an increased share of premiums in the privatized Medicare system.

Raising Medicare’s Eligibility Age/Repealing the Affordable Care Act Health Expansions

In addition to privatizing Medicare, the Ryan budget would increase the age of eligibility for Medicare from 65 to 67 by increasing it two months per year from 2023 to 2034. The Ryan budget also calls for repealing provisions in the Affordable Care Act (ACA), which make insurance available and more affordable for 65 to 67 year olds. Without the guarantees in the ACA, such as requiring insurance companies to cover people with pre-existing medical conditions and to limit age rating, it would be very difficult and expensive for older people who would no longer be eligible for Medicare coverage to purchase private insurance. Repealing the ACA would also take away improvements already in place for Medicare beneficiaries – closing the Medicare Part D coverage gap, known as the “donut hole;” providing preventive screenings and services without out-of-pocket costs; and providing annual wellness exams – unless Congress acted to reinstate these benefits.

Government Relations and Policy, March 2012