Donald J. Trump promised during the campaign that his administration would leave Medicare untouched. He was adamant on that point, declaring in an interview last year, "I'm not going to cut Social Security like every other Republican, and I'm not going to cut Medicare or Medicaid."
But now that he is about to take office, that pledge seems much less solid.
House Speaker Paul Ryan has had his sights set on Medicare for some time. He wants to replace the traditional program with a system of vouchers that beneficiaries can use to purchase coverage through private plans. He hopes to use congressional debates over replacing Obamacare as the vehicle for promoting his idea.
And Trump's choice to head the Department of Health and Human Services, which runs Medicare, Rep. Tom Price (R-Ga.), agrees with Ryan's approach.
This would be a radical change. Medicare covers care by almost every hospital and most doctors in the country, while most private plans limit coverage to providers in their networks, which keep getting narrower. Medicare has remained stable for more than 50 year, while private plans come and go, and for those that remain, the terms of coverage change frequently. And private plans require prior approval before covering expensive tests and procedures, which traditional Medicare does not. Beneficiaries would find coverage under Ryan's plan very different in many ways.
The Ryan plan picks up on longstanding Republican opposition to Medicare that began with the program's enactment in 1965 and has remained over the decades since. In 1995, then House Speaker Newt Gingrich declared, "We don't want to get rid of it in round one because we don't think it's politically smart…But we believe that it's going to wither on the vine because we think [seniors] are going to leave it voluntarily."
In 1996, then Senate majority leader Bob Dole bragged, "I was there, fighting the fight, voting against Medicare . . . because we knew it wouldn't work in 1965."
The rationale for radically altering Medicare is that the program is financially unsustainable and even faces the prospect of bankruptcy, in part because of changes made to it by Obamacare. That claim is patently false.
Part of Medicare is funded by a Trust Fund that includes receipts from a payroll tax. Every year, the program's trustees issue a report projecting the number of years of funding left in the Fund, assuming there are no changes to the program or to medical cost inflation. Since the program began, the number of years they have projected has been as few as two and as many as 28. It is currently 12. In other words, after 50 years, Medicare's financial condition today is in line with what it has been throughout the program's history.
And far from weakening Medicare, Obamacare has substantially strengthened it. The shortfall that the Trust Fund might face in 12 years, if it were to occur, is projected to be one-fifth the size that was projected before Obamacare. This smaller shortfall could be closed by simply raising the payroll tax that funds the Fund from 1.45% to 1.8%. And Medicare's costs are rising at a significantly slower rate than costs for private health insurance, 5.7% versus 7%.
Medicare is not going bankrupt. Claims that it is are a false alarm to justify making radical changes.
In fact, it is a voucher system that would be unsustainable. Private plans are much less efficient than Medicare, with a typical overhead rate of about 17% compared to Medicare's rate of about 2%. Much of their revenue goes to administrative costs such as marketing, executive compensation, and dividends. That is a major reason why their costs are rising faster than Medicare's and why coverage under private plans that operate under Medicare's current private option, known as Medicare Advantage, costs about 12% more than standard Medicare.
And there is a fundamental contradiction in Ryan's plan. Choosing from among competing private plans with government-financed vouchers sounds a lot like selecting a plan in an insurance marketplace with government-financed subsidies – in other words, Obamacare. If congressional Republicans think that Obamacare has failed for patients below age 65, what makes them think Ryancare would succeed for the elderly? The only way it can succeed is by making the vouchers extremely generous, and that would raise Medicare costs, rather than lowering them.
So, will Medicare survive under a Trump administration? Trump's positions have flipped on many issues, and it is too early tell what will happen with this one. But seniors certainly have cause for concern.
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