Privatizing Medicare Will Destabilize Benefits For All Seniors, Even Those Allegedly Exempted From It

According to Paul Ryan, privatizing Medicare will open up a universe of benefits to patients so bounteous that they won’t even mind that the value of the vouchers they’re getting is eroding at a frightening rate. But also according to Paul Ryan, today’s elderly people don’t need to worry about the fact that this doesn’t make sense since “if you’re 55 and above, no changes whatsoever in Medicare.” I’ve written before about how politically unstable this is going to be. Ryan is essentially promising people born in 1956 and earlier that people born in 1955 and later are going to keep taxing ourselves to finance an expensive program that we’ll never benefit from.

My colleague Igor Volsky adds the observation that even if this problem is avoided, Medicare will be actuarially destabilized anyway:

In 2022, newly-eligible beneficiries would have to enroll in a private plan, but existing beneficiaries (those who are over 55 today) would also have the option of leaving traditional Medicare. As Ryan’s budget put it, “While there would be no disruptions in the current Medicare fee-for-service program for those currently enrolled or becoming eligible in the next ten years, all seniors would have the choice to opt into the new Medicare program once it begins in 2022. No senior would be forced to stay in the old program.”

That opens up the possibilities of private plans trying to lure away the healthiest beneficiaries (as is currently the case in Medicare Advantage) and of health care providers abandoning traditional Medicare patients for the higher reimbursement rates of private insurers. For chronically ill seniors who are more likely to remain in fee-for-service Medicare this means two things: higher costs (as the healthier beneficiaries exit the risk pool) and fewer doctors.

You could conceivably deal with the adverse selection issue, but the provider abandonment problem is completely unsolvable. Right now most health care providers accept Medicare even though its payment rates are stingy because the customer base is so large. Under Ryancare, starting in eleven years the size of the Medicare customer base will start to erode. That means each and every year more providers will find it’s in their interests to abandon Medicare patients. Imagine the sorry fate of the Last Medicare Patient In America, alone and adrift in a world of privatization. Who’s going to take his insurance? Nobody. But of course there won’t be any such Last Medicare Patient because the combination of actuarial and political instability ensures that sometime in the late 2020s or early 2030s, the remaining stock of Medicare beneficiaries will be tossed into the higher-cost voucher pool.