Why we Must End Medicare as We Know It
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By Sally C. Pipes
As Republican leaders in Congress prepare to negotiate over the federal budget with their Democratic counterparts in the aftermath of the election, it's time for everyone to face a hard truth -- we must end Medicare as we know it. The entitlement is bleeding to death. Without major changes, it won't be around for the next generation of seniors.
Medicare covers approximately 50 million seniors today. But the mass retirement of the Baby Boom generation is just beginning, and skyrocketing healthcare costs have made the program's finances unsustainable.
According to Medicare's trustees, the program's main trust fund will run out of money in 2024.
President Obama's signature achievement of his first term, the Affordable Care Act, actually makes Medicare less viable in the long term. According to the Congressional Budget Office, Obamacare will cut Medicare by $716 billion over the next decade but without any structural reform of the program. Some $400 billion will be carved out of reimbursements for healthcare providers.
As a result, the Administration's own Medicare actuary estimates that roughly 15 percent of hospitalization facilities serving Medicare patients will become unprofitable. Seniors will quickly see their healthcare options dwindle.
The president also slashes Medicare Advantage (MA), a part of the program that empowers 13 million seniors today to buy coverage from private providers. The assault on MA is no doubt motivated by Democrats' hostility to market-based reforms of any kind in the program. Never mind that Harvard economists, including former Obama adviser David Cutler, recently found that MA can provide the same services as traditional Medicare for 87 cents on the dollar.
The president's other "cost-saving" measures are already proving to be ineffectual. According to the Commonwealth Fund, 75 percent of hospitals want nothing to do with Obamacare's Accountable Care Organizations, which are designed to consolidate doctors and hospitals into large groups that will be rewarded or punished by the feds depending on how well they contain Medicare costs.
And then there's the Independent Payment Advisory Board (IPAB), which, starting in 2014, will empower a collection of 15 unelected bureaucrats to make sweeping decisions about how to cut Medicare costs -- with next to no oversight from Congress.
Both cost-control initiatives actually risk raising overall health care costs, as providers shift costs to stay in business. And by ratcheting down already low reimbursements, ACOs and the IPAB will make finding a doctor even more difficult for seniors. Already, 52 percent of doctors have limited the number of Medicare patients they'll see.
House Majority Leader Eric Cantor (R-Va.) has told his GOP colleagues that repeal of IPAB could attract Senate support -- even with opposition from Senate Majority Leader Harry Reid (D-Nev.).
Compare these non-solutions to plans put forward by the GOP, including former vice presidential candidate Paul Ryan. He's still chairman of the House Budget Committee -- so his proposals could get some airplay.
The GOP approach would slowly move Medicare toward a premium support model, with government subsidies to help beneficiaries purchase coverage. Seniors would choose from among competing insurance options, including traditional Medicare.
No one 55 or older would have to move to the new plan. Subsidies would be generous, based on the second least expensive plan within the Federal Employee Health Benefit Plan. Those who want more elaborate coverage would pay more out of pocket. Those choosing a less expensive plan would get a cash rebate.
According to the Congressional Budget Office, such reforms would reduce total government spending on mandatory health programs from 14 percent of GDP to just 5 percent by 2050.
But there's plenty more that market-minded reformers can do to shore up Medicare. Real Medicare vouchers, for instance, would give beneficiaries even more freedom to choose the coverage that best suits their needs while encouraging them to be cost-conscious. Means testing would cut costs by requiring the wealthy to pay for more of their own care. Raising the Medicare eligibility age would adjust for the fact that Americans are living longer -- and save money.
The Democrats have long portrayed their party as Medicare's Dudley Do-Right to the GOP's Snidely Whiplash. But it's the GOP that's actually serious about saving the program.
Indeed, as syndicated columnist Steve Chapman has said, "the real enemy of Medicare 'as we know it' is not Ryan. It's arithmetic."
If our leaders don't end Medicare as we know it, the program will soon cease to exist on its own.
Sally Pipes is President, CEO, and Taube Fellow in Health Care Studies at the Pacific Research Institute. Her latest book is The Pipes Plan: The Top Ten Ways to Dismantle and Replace Obamacare (Regnery 2012).
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