Answers to questions about possible changes to Medicare

Kaiser Health NewsApril 3, 2012 

WASHINGTON — Congress is unlikely to consider legislation that would fundamentally restructure Medicare until a new Congress — and possibly a new president — are seated next year. But politicians have sought to tackle the growth in Medicare costs several times in the past two years, most notably in the 2010 health care law and then in last year's federal budget deal.

The more immediate pressure is to reduce the federal budget deficit by the end of this year to stop automatic 2 percent spending cuts from going into effect in 2013, as last year's budget agreement requires. That probably will entail slowing spending growth in Medicare, which provides health care to 47 million seniors and people with disabilities and consumes about 15 percent of the federal budget.

Here Kaiser Health News answers several frequently asked questions about the timeline for overhauling Medicare and reducing spending, and proposals under consideration.

Q. The House of Representatives passed a budget last week that included a Medicare overhaul. Will it become law?

A. No. With strictly Republican support, the House last Thursday approved a federal budget for 2013 that included controversial Medicare changes, written by Budget Committee Chairman Paul Ryan, R-Wis. Democrats control the Senate, however, and they've said they won't take up a budget resolution this year.

That means the GOP document will serve mostly as an election-year rallying point. Republicans will cite it as proof that they're serious about reducing the nation's deficit, while Democrats will portray it as an attack on senior citizens and others.

On Tuesday, for instance, in a speech in Washington before the American Society of News Editors, President Barack Obama called the Ryan Medicare plan a "bad idea" that "will ultimately end Medicare as we know it" and force seniors — particularly sicker ones — to bear a larger share of their health care costs.

Q. So Medicare will remain untouched at least until next year?

A. No. The 2010 health care law made some potentially important money-saving changes to the program. It saves $500 billion in Medicare spending over 10 years, in part by cutting rates to private Medicare Advantage plans and reducing payments to hospitals and other medical providers.

It also requires higher-income seniors to pay more for their care. In addition, the law created a yet-to-be-constituted panel of experts, called the Independent Payment Advisory Board, to cap federal spending on Medicare at no more than the growth rate of the gross domestic product plus 1 percent.

After November's elections, lawmakers will seek agreement on ways to cut the deficit once again, including through targeted proposals to lower Medicare spending. If they're unsuccessful, automatic spending cuts of 2 percent are slated to start taking effect next year, all from payments to hospitals and other care providers.

Q. What about more structural changes, such as the ones that Ryan has been pushing?

A. Ryan has gotten a lot of attention for his Medicare proposals, which are likely to be considered along with other overhaul plans next year, especially if Republicans win control of the Senate, the White House or both.

The latest Ryan proposal was nearly identical to a premium support idea that he put forward in December with Sen. Ron Wyden, D-Ore., and one that GOP presidential hopeful Mitt Romney crafted in November. It would provide a set amount of money for future Medicare beneficiaries — those currently younger than 55 — to purchase either private health plans or the traditional government-administered program through a newly created Medicare exchange. That subsidy would replace the guaranteed set of benefits the federal government now provides regardless of costs.

Q. Does Wyden's support mean that other Democrats will get behind it?

A. Not likely. Even Wyden didn't endorse the House Republican budget, because it has stricter spending limits than the plan the two co-authored. Democrats dislike how Ryan's plan would shift risk to seniors, and they plan to campaign against it next fall.

They point to a Congressional Budget Office analysis of a similar proposal last year that projected that by 2030 a typical 65-year-old would be required to pay 68 percent of the cost of his or her Medicare-covered services. That compares with the 25 percent that he or she would pay under current law.

Also, some critics argue that the promise in Ryan's latest proposal that future beneficiaries can choose the traditional, government-run program is disingenuous. They cite the risk that the government-run plan would attract the sickest people, driving up its costs, while private plans lured the healthiest, and that medical providers might abandon the program if Medicare cuts their rates to curb costs.

Q. Is there anything that Democrats and Republicans agree on?

A. Ryan and Obama have proposed capping the growth of Medicare to the annual increase in the gross domestic product plus 0.5 percent. Members of both parties talk about increasing the eligibility age of Medicare from 65 to 67 and requiring higher-income beneficiaries to pay more.

Q. Where do the presidential candidates stand on Medicare?

A. Romney's plan is similar to the one the House approved last week, which he and competitor Newt Gingrich have endorsed. Rick Santorum, another GOP competitor, also supports Ryan's ideas, but has said he'd prefer eliminating the traditional, government-run program and requiring beneficiaries to choose from plans offered by private insurers. Candidate Ron Paul, a Republican congressman from Texas, would maintain Medicare for current seniors but would wean younger people away from the insurance program in favor of free-market approaches.

Obama takes a somewhat different tack: His health care law retains Medicare's benefit structure but authorizes some efforts to try restraining spending by moving to a reimbursement system that rewards providers based on patient outcomes, rather than on volume.

The law also requires higher-income beneficiaries to pay more for their care, and it created a panel to make recommendations to cap Medicare's growth if it exceeds a certain percentage of the GDP.

Last year, the president rebuked Ryan for his earlier proposal to overhaul Medicare in a speech at George Washington University, saying it was "less about reducing the deficit than it is about changing the basic social compact in America." Obama called for what he said was a "balanced approach" that included spending cuts as well as tax increases.

(Kaiser Health news is an editorially independent program of the Henry J. Kaiser Family Foundation, a nonprofit, nonpartisan health policy research and communication organization that isn't affiliated with Kaiser Permanente.)

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