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President Obama vs. Paul Ryan on Controlling Medicare Spending President Obama vs. Paul Ryan on Controlling Medicare Spending

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Health Care / HEALTH CARE

President Obama vs. Paul Ryan on Controlling Medicare Spending

May 4, 2012

It may come as a surprise that President Obama and House Budget Chairman Paul Ryan, R-Wis., are pushing the same target rate for curbing annual federal spending on Medicare. Each would set it at half a percentage point higher than the growth rate of the economy -- the gross domestic product. Looking at their plans in more detail, however, the practical effects are likely to be very different when it comes to restraining federal spending and impact on seniors.

"There is a consensus, an agreement that Medicare is unsustainable," said Ryan spokesman Conor Sweeney. "That's where the agreement is, and it's where the agreement ends."

Here are some questions and answers about the Democratic and Republican approaches to moderating spending on the popular program, which covers 47 million seniors and disabled people.


Q. If both Obama and Ryan are proposing a target growth rate of GDP plus half a percentage point for Medicare, shouldn't federal spending be the same under both scenarios?

There are important differences. Ryan's plan is a hard cap on federal spending. He would automatically lower Medicare spending so that it is below the trigger level.

Obama is proposing a target that might not bring federal spending down to that level. His proposal follows an effort in the 2010 health law to curb Medicare cost growth by tying the spending target to the Consumer Price Index in early years, and later on to the rate of GDP growth plus 1 percentage point. Now Obama is proposing to lower the target to the rate of GDP plus half a percentage point. If federal spending per Medicare beneficiary is rising faster than that -- a determination made by the Medicare actuary -- then cuts are triggered.

The cuts would come as a percent reduction in Medicare spending. Such cuts wouldn’t necessarily be sufficient to meet the target, however.

Q. How would beneficiaries be affected by cuts under Obama's plan?

As under the health law, Obama would make direct cuts to benefits off-limits. The health law created the Independent Payment Advisory Board to come up with proposals to reduce spending if Medicare grows at a higher rate than the target. But the board's 15 members, who will be appointed by the president and confirmed by the Senate, are not allowed to recommend anything that would ration care or change benefits, eligibility, or cost-sharing for Part A (hospital services) or Part B (physician services). It also couldn't do anything to change the percentage of premium that seniors pay for prescription drug coverage or the subsidies that low-income individuals get. The expectation is that reductions would come from medical providers, although hospitals are protected at first.

Beginning in fiscal year 2015, if Medicare spending exceeded the target, the board would send its recommendations to Congress. The secretary of Health and Human Services would have to implement those recommendations unless Congress passed alternative cuts. The future of IPAB is questionable, as Republicans -- and some Democrats -- have sought to kill it, arguing that the board will end up rationing care and have too much control over Medicare. Obama has yet to nominate panel members.

Some health care analysts argue that reducing payments to medical providers could drive them out of Medicare and create access issues for beneficiaries. Richard Foster, Medicare's chief actuary, warned in the 2012 Medicare trustees' report that the health law will eventually lower payments to medical providers so much that "Congress would have to intervene to prevent the withdrawal of providers from the Medicare market and the severe problems with beneficiary access to care that would result."

Q. And under Ryan?

Ryan is not specific in his plan about what he’d cut to keep spending below his proposed cap, but has said that Congress could expand requirements for higher-income beneficiaries to pay more. Spokesman Conor Sweeney says that competition among both public and private health plans would lower costs and seniors would be able to choose the best health plans to suit individual needs. "Seniors want more power and control over their Medicare dollars," he said.

Under Ryan's so-called premium support proposal, all plans, including traditional Medicare, would submit bids for how much they would charge to cover a beneficiary's health care costs. All plans would include a minimum set of benefits equal to the value of those in the traditional program. The government would pay the full premium for the private plan with the second-lowest bid, or for traditional Medicare, whichever is lower. Beneficiaries would have to pay the difference if they chose a plan that set rates higher. Ryan estimates that this system would keep Medicare spending below his target. If it doesn't, however, then automatic cuts would occur

The Congressional Budget Office estimated that Ryan's proposal from last year would require a typical 65-year-old to pay a lot more for Medicare by 2030. His latest plan is missing key details, so the CBO has been limited in its analysis.

Although Ryan would give future seniors the option of remaining in the traditional, government-run Medicare program, it would have to compete with private plans. Critics predict that traditional Medicare could become unaffordable if it attracts the sickest people while private plans lure the healthiest. They also say that beneficiaries might have trouble finding physicians if they abandon the program because their rates are cut.  

Obama is a critic of premium support: His ideas are rooted in the health law, and would retain Medicare's existing structure. Currently, the government runs the program on a defined-benefit basis, meaning that the government will pay whatever it takes to cover a specified set of services. A quarter of beneficiaries are enrolled in private Medicare health plans, although they don’t compete with the traditional program on price, as they would under Ryan's plan.

Q. What's next for Medicare?

The House Ways and Means Committee conducted a hearing April 27 on the premium-support concept, but lawmakers are unlikely to consider legislation that would restructure Medicare in any significant way until a new Congress -- and possibly a new president -- are seated in 2013. Still, after the elections, Congress may try to pass budget-reduction legislation that would avert automatic 2 percent cuts in Medicare required under last year’s budget agreement. In the meantime, Medicare is proving to be a contentious issue in presidential and congressional campaigns nationwide, as both parties vie for the coveted senior vote. Behind the scenes, stakeholders -- from seniors' advocates to insurance leaders -- are working to produce proposals that protect Medicare and their interests.

This story was reprinted from with permission from the Henry J. Kaiser Family Foundation. Kaiser Health News is an editorially independent program of the Henry J. Kaiser Family Foundation, a nonprofit, nonpartisan health policy research and communications organization not affiliated with Kaiser Permanente.

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