Why Seniors Could Pay $5,900 More for Health Care Under the Republican Budget

Our guest blogger is Topher Spiro, the Managing Director of Health Policy at the Center for American Progress.

Earlier this week the Center for American Progress released an analysis of the Republican budget’s Medicare plan, which would provide vouchers to beneficiaries to purchase either a private health insurance plan or the traditional Medicare plan. We pointed out that new beneficiaries could end up paying as much as $1,200 more per year by 2030 and $5,900 more per year by 2050. Here’s a detailed explanation of where those numbers come from.

The nonpartisan Congressional Budget Office analyzed the Republican budget and estimated its effect on average Medicare spending per beneficiary. Under current law, or CBO’s “baseline scenario,” CBO projects that average spending will rise from $5,500 today to $8,600 in 2030 and to $17,000 in 2050. (CBO converted all dollar figures to 2011 dollars to remove the effects of inflation and ensure appropriate comparisons over time.) These numbers reflect the projected trend in health care costs over time.

But the Republican budget would limit the growth in Medicare spending per beneficiary to growth in the economy plus 0.5 percentage points. That growth rate is much slower than the projected growth rate under current law. As a result, under the Republican budget, CBO projects that average spending would rise to only $7,400 in 2030 and to only $11,100 in 2050. Since the Republican budget would convert Medicare spending into vouchers, these dollar amounts would be the amounts of the vouchers, on average.

In other words, CBO projects that government spending per beneficiary would be $1,200 lower in 2030 (the difference between $8,600 under current law and $7,400 under the Republican budget) and $5,900 lower in 2050 (the difference between $17,000 under current law and $11,100 under the Republican budget).

The key question is: where would these cuts in government spending per beneficiary come from?

For all its self-congratulation for specificity, the Republican budget never specifies how its cap on Medicare spending would be enforced. Under current law, the Affordable Care Act limits growth in Medicare spending to growth in the economy plus 1 percentage point. That cap is enforced by a specific mechanism—an independent expert panel—that creates a strong incentive for Congress to act. But Republicans have disavowed any such mechanism.

And in the absence of any other enforcement mechanism, it’s likely that the cap would be enforced by limiting the amount of vouchers provided to beneficiaries. After all, we know that capping the vouchers is the clear policy goal of Republicans—we need look no further than the budget they proposed last year. What’s more, converting all Medicare spending into vouchers means that it would be difficult to limit Medicare spending by any other means.

The vouchers, therefore, would likely be capped at CBO’s projected spending per beneficiary under the Republican budget: $7,400 in 2030 and $11,100 in 2050. And since these amounts would be much lower than actual costs, beneficiaries would be left to pay the difference.

Of course, Republicans would argue that competition under premium support would lower actual costs below current law levels. But there’s scant evidence that competition alone would lower health care costs substantially. Why? Simply increasing competition among insurers would have little effect without addressing underlying health care costs and competition among health care providers. And even if competition did lower costs, it would only lower the level of costs—not the growth in costs over time.

The upshot is that it’s highly unlikely that competition would come anywhere close to lowering actual costs to the amount of the vouchers. And if competition doesn’t end up lowering costs at all, beneficiaries would be on the hook for $1,200 by 2030 and $5,900 by 2050.