The Seven Ways In Which Paul Ryan’s Budget Would Undermine Medicare And Medicaid

Rep. Paul Ryan (R-WI) is arguing that his plans to reform Medicare and Medicaid would give seniors more control over their health care decisions, all the while lowering federal expenditures and preserving the integrity of the social safety net. Beginning in 2022, seniors will purchase coverage from a variety of private insurers, which will receive a set “premium support” from the federal government. States, meanwhile, will depend on a block grant that would be lower than the present federal match and would require some states to either increase spending or reduce services and/or eligibility.

In both cases, seniors and states would have to shoulder more of the risks and costs of coverage, as economic risk will be shifted from a broad spectrum of society onto individual beneficiaries and states. Below are seven consequences of Ryan’s Medicare and Medicaid budget proposals:


1. SENIORS WILL PAY MORE FOR THE SAME BENEFITS: Ryan claims that lower income seniors would receive more assistance, but under the budget, seniors who will be forced to choose from an array of private insurers would still have to pay more for the same amount of coverage than if they simply stayed in the traditional Medicare program. Private insurers carry extra cost, as a comparison of traditional Medicare and private insurers in Medicare Advantage demonstrates. Both operate under the same rules and enroll the same population, but according to the Congressional Budget Office, traditional Medicare spends less than 2 percent of expenditures on administrative costs, while private plans in Medicare Advantage spend approximately 11 percent on additional expenditures like profits. As the CBO concluded, “future beneficiaries would probably face higher premiums in the private market for a package of benefits similar to that currently provided by Medicare.” Moreover, lower income seniors generally have poorer health and therefore need more care. Currently, they are charged higher out of pocket costs by private insurers in Medicare Advantage that traditional Medicare. [CBO, 12/2006, 11/2010, Commonwealth Fund]

2. INSURERS WILL LIKELY CHERRY-PICK THE HEALTHIEST ENROLLEES: Insurers would be encouraged to design policies that attract a healthier segment of the Medicare population by either advertising certain health benefits (like gym memberships) while under promoting benefits (like cancer treatment) that would enlist sicker applicants. This would lead to an “adverse selection” problem in which healthier beneficiaries will gravitate towards certain plans, increasing the costs for sicker individuals who need a broad range of services. [KFF, 2/2002]

3. COSTS WILL INCREASE IN TRADITIONAL MEDICARE: Ryan claims that seniors would have “freedom to choose a plan that works best for them” — including the existing Medicare program– but historically, private plans participating in Medicare have enrolled healthier than average enrollees, leading the traditional health care plan to experience adverse selection that causes premiums to increase. If healthier enrollees opt out for private plans in great numbers, most beneficiaries will be priced out of their existing coverage. According to researchers at the Kaiser Family Foundation, a premium support scheme would “result in a large erosion of the Medicare fee-for-service program,” despite government attempts at adjusting risk selection. [KFF, 2/2002]

4. SENIORS WILL NOT BE ABLE TO EASILY ‘CHOOSE A PLAN THAT BEST SUITS THEIR NEEDS’: Ryan claims that he will provide seniors with “a list of guaranteed coverage options,” but seniors may have a hard time choosing and discerning between different health care plans, potentially enrolling in a plan that does not work well for them. According to a recent study of private options in Medicare Part D, “older adults were less likely to identify the plan that minimized their total annual cost and were likely to mistakenly think they had chosen the lowest-cost plan.” [Health Services Research, 5/26/2009]

5. SENIORS WILL NOT HAVE THE SAME EXCHANGE AS MEMBERS OF CONGRESS: Ryan constrains the rate of growth in Medicare by offering seniors a defined contribution, regardless of the rate of growth in health care costs. The federal government’s contribution in the FEHBP program, by contrast, reflects actual increases in premium levels. As the Office of Personnel Management describes it, the FEHBP formula “is known as the ‘Fair Share’ formula because it will maintain a consistent level of Government contributions, as a percentage of total program costs, regardless of which health plan enrollees elect.” The difference is that the GOP’s proposal provides seniors with a set amount of money that, in order to reach the kind of savings he’s advertising, would have to depreciate every successive year — even as health care costs increase. Also, because the Medicare population is older and sicker than the FEHBP population, health insurance funds will make efforts to limit benefits and their payouts. [OPM]


6. BLOCK GRANTS WOULD DESTROY MEDICAID: States would receive an annual federal appropriation that would be less than current projected growth of the program, forcing state governments to make up the difference by increasing spending or (more realistically) capping enrollment, cutting eligibility, limiting mandatory benefits and lowering provider reimbursements. As the CBO put it in examining Rep. Paul Ryan’s (R-WI) Medicaid block grant proposal: “reducing federal payments for Medicaid relative to currently projected amounts would probably require states to provide less extensive coverage, or to pay a larger share of the program’s total costs, than would be the case under current law.” [CBO, 11/2010]

7. VITAL SERVICES ENDANGERED Despite its problems, Medicaid provides vital long-term care and acute care services to elderly and disabled beneficiaries efficiently (in fact, two-thirds of program costs are spend on seniors and people with disabilities). After controlling for health status (since Medicaid enrollees tend to have greater health care needs), it costs more than 20 percent less to cover low-income people in Medicaid than it does to cover them in private health insurance. The program also protects low-income Americans from uncontrollable out-of-pocket costs charged by private insurers and “covers services not usually covered in private health insurance.” In 2011, over 69.5 million Americans will benefit from the program and according to a recent Kaiser Family Foundation poll, 59 percent of the American people said Medicaid was either “very important” to them or their families or “somewhat important.” An Urban Institute policy brief also concluded that on a per enrollee basis, “growth in Medicaid spending (the national average, not necessarily specific states) is slower than both growth in national health expenditures per capita and increases in private health insurance premiums.” [Families USA, KFF, 4/05/2011, Urban]