The Romney/Ryan proposal to transform Medicare’s guaranteed benefit into a “premium support” structure for future retirees could increase costs by almost $60,000 for seniors reaching the age of 65 in 2023, a new report from the Center for American Progress finds. Current seniors would also have to pay more for preventive, hospital, and physician services should Romney and Ryan repeal the Affordable Care Act, facing an increase in health spending of between $7,900 and $18,600 over the course of their retirement.
Beginning in 2023, Romney’s proposal — which is modeled heavily on Paul Ryan’s FY 2013 budget — would provide all retirees with a premium support subsidy to buy coverage from an exchange of private insurance plans or traditional Medicare. Private insurance plans in each geographical area would bid for how much they would charge to provide Medicare benefits and the premium subsidy would be tied to the premium of the plan with the second-lowest cost, or the premium for traditional Medicare—whichever is lower. If seniors choose a plan that costs more than the voucher, they will have to pay the difference. As a result, most seniors will have to spend more on coverage. Here are 5 reasons why:
1) Current seniors will pay more. The premium support structure does not kick in until 2023, so current seniors will remain in the existing Medicare program. But should Romney/Ryan repeal the Affordable Care Act’s savings, beneficiaries will face higher cost sharing and premiums (particularly for preventive services) and seniors who have received prescription drug discounts, will now pay more for their medications. What’s more, Romney/Ryan would lower Medicaid spending significantly beginning next year, shifting federal spending to states and beneficiaries, and increasing costs for the 9 million Medicare recipients who are dependent on Medicaid.
2) Cost shift to future retirees. The average beneficiary will receive a premium support credit of $7,500 in 2023 to purchase coverage in traditional Medicare or private insurance. But that amount will only grow at a rate of GDP plus 1.5 percentage points and will not keep up with health care costs. So while the federal government will spend less on the program, seniors will pay more in premiums.
3) Private insurers will charge more. Private plans lack the market clout and efficiencies of traditional Medicare, experience higher profits and administrative costs, and will charge more for the same coverage seniors currently enjoy in the traditional program.
4) Private insurers will cherry pick the healthiest beneficiaries. The existing private plans in Medicare — insurers that participate in Medicare Advantage — have long attracted the healthiest, lowest-cost enrollees from the Medicare population. Without robust regulations, private insurers will have an incentive to ramp up benefits that attract healthier seniors (i.e. preventive services), while playing down care that sicker beneficiaries rely on (i.e. chemotherapy or services to manage expensive chronic conditions). If healthier applicants leave the program, premiums for traditional Medicare will increase.
5) Medicare will yield fewer savings. As some seniors opt out of traditional Medicare and enter into private coverage, “Medicare’s market share will fall and neither Medicare nor any single private insurer would have sufficient market share to negotiate provider prices as low as Medicare can achieve.”
Read the full report here or check out this infographic: