What to do about Medicare is at heart of budget debate

WASHINGTON — Congress and the White House are engaged in the most far-reaching debate about Medicare in the health program's 46-year history, an epic struggle that could bring significant changes in how the government helps seniors and others pay for their care.

Medicare faces a daunting financial crisis, forcing lawmakers to confront stark choices. Should younger people pay more to support the program? Should they assume that Medicare won't be around in its current form when they're ready for its coverage? Should seniors pay higher deductibles? What's the government's responsibility to the very ill and elderly who live on fixed incomes and need acute care?

In many ways, this is a debate about one generation's obligations to another — and about the role of government in caring for society's most vulnerable people. It's a struggle whose outcome may not be resolved for years, until a consensus is forged.

"Right now people are just beginning to position themselves to debate an issue that's been brewing for at least two decades," said Gail Wilensky, the director of the Medicare and Medicaid programs from 1990 to 1992.

The health-care community has long been seeking ways to stabilize the system's finances, since the long-anticipated surge of baby-boomer retirements was certain to drive up costs.

Now the federal government's broader budget deficit and debt crisis "has added urgency," said Wilensky, who's a senior fellow at Project HOPE, an organization that works to make health care available around the world.

Republicans in the House of Representatives have offered the most dramatic alternative. They took the politically risky step April 15 of voting to radically revamp Medicare so that after 2021, new beneficiaries would get government aid to pay for private insurance plans, rather than have the government cover the costs directly, as it does now.

Democrats branded the proposal an irresponsible dismantling of an effective safety net. They conceded that the current system — a complex network of hospital, physician and prescription-drug benefits that the government pays providers for directly — needs to be modified, but not radically overhauled.

As long as President Barack Obama is in office and Democrats run at least one house of Congress — they now control 53 of the Senate's 100 seats — Medicare is likely to survive largely in its current form.

But some changes are inevitable, because the financial warning signs are growing more ominous. Medicare is an obvious target, said John Holahan, the director of the Health Policy Research Center at Washington's Urban Institute, a centrist policy-research center.

The increasingly dismal fiscal ledger:

  • The federal budget deficit is projected to reach a record $1.65 trillion this fiscal year, which ends Sept. 30. According to the nonpartisan Congressional Budget Office, under current policies the government will run up about $7 trillion in budget deficits over the next 10 years. The national debt is already a whopping $14.3 trillion.
  • Medicare cost about $521.1 billion in the last fiscal year. Program officials expect the figure to reach $569.3 billion this year, and to grow at a 5.6 percent annual rate through 2021, far more than the anticipated growth in the overall economy.
  • Medicare is expected to serve 48.5 million beneficiaries this year; by fiscal 2021, the total's projected to be 64.9 million.
  • Medicare's hospital trust fund, which pays for inpatient hospital and related care, can't cover costs. It "still fails the test of short-range financial adequacy ... the fund also continues to fail the long-range test of close actuarial balance," the Medicare trustees' 2010 report said.
  • The Washington debate turns on two very different approaches to Medicare's future; they reflect the two political parties' rival visions of government's role in society.

    Democrats would shave about $507 billion from Medicare spending between 2012 and 2021, according to the Congressional Budget Office. Changes could be significant, though not all that visible to consumers. Among them: establishing a mechanism to cut Medicare's spending if its growth rate rises above a set amount, penalizing hospitals for "excessive readmission rates" and creating new, potentially more efficient ways for people to get medical care.

    But there's a big asterisk attached to these initiatives: What if too many doctors, hospitals and other providers stop taking Medicare patients because they're not getting paid enough to treat them?

    Congress consistently has shown a willingness to bow to such pressure. For the past nine years, Medicare spending on doctors and other health-care providers was supposed to be limited to a set schedule, but, facing political heat, Congress prevented the scheduled pay cuts from taking effect.

    Under the formula, payments to doctors would go down about 23 percent next year. But next year's an election year, and Congress is likely to continue its tradition of enacting the "doc fix."

    "There is general consensus that fee cuts of that magnitude would be detrimental to beneficiary access to care," said Glenn Hackbarth, the chairman of the Medicare Payment Advisory Commission, a nonpartisan congressional agency that advises lawmakers on Medicare policy.

    The solution, Democrats say, is to make medical care more efficient, perhaps by "bundling" services. Beneficiaries could work with teams of providers, perhaps doctors, nurses or social workers, coordinating strategies that minimize routine office visits and target treatment where it's most effective.

    While many health-care experts like such a system, "no one really knows how much money will be saved" under it, although most think it would save money, said John Rother, the executive vice president of policy and strategy at AARP, which represents seniors.

    Skeptics of the Democratic approach think the projected savings are too speculative, the "doc fix" problem will persist and the Democrats' plans won't trigger the scale of change that's needed to curb costs.

    Under those or current policies, "you're not going to see the bubble burst all at once. What you'll see is a creeping problem with access," said Robert Moffit, a senior fellow at the Center for Policy Innovation at the conservative Heritage Foundation.

    Some conservatives call the Democratic proposals little more than gimmicks to sustain a wheezing system. The GOP takes special aim at the Independent Payment Advisory Board, a yet-to-be-appointed panel created by the 2010 health care law to oversee Medicare spending. Obama said last week that he wants the board to have even more cost-cutting clout, which conservatives oppose as oppressive central-government control.

    In contrast, the Medicare overhaul drafted by House Budget Committee Chairman Paul Ryan, R-Wis., and approved by the Republican-dominated House in mid-April — with no Democratic votes — would create a new system, shifting costs over time from government to elderly beneficiaries.

    People who retire after 2021 would choose from a list of private "guaranteed coverage options" and get federal help with the cost. The federal payments to 65-year-olds in 2022 would average $8,000, about the same as projected average provider reimbursements per typical 65-year-old patient under traditional Medicare that year. The payments would increase at the rate of general inflation in future years, though health care costs historically have risen faster than inflation.

    Ryan defends the new program vigorously, saying, "It's choice, it's competition, it's protection."

    Counters Rother: It endangers the elderly.

    "Medicare is essential financial protection for older people and the disabled," he said, particularly older seniors on fixed incomes.

    Under current Medicare, a typical 65-year-old can expect to spend $6,150 of his or her own money on health care in 2022. Under Ryan's plan, that figure would jump to an estimated $12,500, according to figures derived from CBO estimates.

    Republicans say that seniors wouldn't be left without care, or without bank accounts, because the government would help those in need. Without such sweeping changes, they argue, Medicare won't be able to pay its bills.

    "We don't want to ration Medicare. We don't want to see Medicare go bankrupt," Ryan said.

    Is there middle ground?

    One debt-reduction panel chaired by former Federal Reserve Vice Chairman Alice Rivlin and former Republican Sen. Pete Domenici proposed last November to limit growth in federal support for Medicare beneficiaries to a formula: the rate of growth in the gross domestic product plus 1 percentage point. The cost per enrollee grew at GDP plus 1.7 percentage points annually from 1985 to 2008.

    If costs were higher, beneficiaries could remain in the Medicare system and pay additional premiums, or they could buy coverage from private insurers.

    The betting is that the government's elaborate role in Medicare will persist, but there will be tinkering with formulas, more financial burdens on younger people and perhaps higher deductibles or payments from wealthier beneficiaries.

    "The Obama approach puts all of the responsibility to contain costs on providers, while the Ryan approach puts it all on beneficiaries," said Paul Ginsburg, the president of the Center for Studying Health System Change, an independent research group. "Given the magnitude of our debt problem, we will need some of each."

    But when?

    "Nothing terrible is going to happen this year or the year after that," Wilensky said.

    Meanwhile, the public needs to be educated; in an April McClatchy-Marist poll, 80 percent said they opposed any cuts in Medicare.

    "The surveys are daunting," Wilensky said, "but we have to do something.''


    Florida GOP Rep. Dan Webster town hall

    McClatchy-Marist poll

    2010 Medicare/Social Security trustees' report

    Debt Reduction Task Force report

    House vote on Ryan budget

    House Democratic budget

    House Republican spending cuts

    President Obama's 2012 budget

    Congressional Budget Office budget and economic outlook


    GOP plan will punish the poor, Obama tells Facebook friends

    Obama's deficit plan begins tug-of-war with Republicans

    Thought 2011 budget battle was messy? Wait for next round

    Pelosi's influence fades in House and her party

    Check out McClatchy's politics blog: Planet Washington

    Related stories from McClatchy DC