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Flawed Medicare diagnosis, remedy

The Mitt Romney/Paul Ryan team proposes to save Medicare from "bankruptcy" by changing it radically for those currently under age 55. Those older than 55 would be allowed to continue with Medicare as it has been since 1965: a single-payer health care plan for those 65 and older.

The younger cohort would be encouraged to purchase private health insurance with some financial help from the government in the form of vouchers, dubbed "premium support." Ryan has recently added conventional Medicare as an option, a hollow palliative since he also proposes to cut funding by $716 billion from this already underfunded program to pay for income tax cuts.

Four Causes for Concern. Economics points to four concerns, even for those in the older group promised conventional Medicare.

First, the disparate treatment of the two age groups increases the risk to future funding for Medicare. Currently, Medicare relies on three revenue sources — a monthly premium paid by the recipient, a payroll tax paid by all workers and, when the first two are not sufficient, selling bonds from the Medicare Trust Fund. The significant cost advantages of Medicare depend on everyone being in the insurance pool, with healthier people paying for the less fortunate. To continue conventional Medicare for some, the government would have to continue to impose the payroll tax on all jobholders, even on those who will not have Medicare when they reach 65.

The Romney-Ryan plan would encourage healthier people to opt out, requiring the program to increase premiums, encouraging further exits. As this death spiral becomes evident, the young would predictably lobby to end paying for a program they will not want to choose when they are older, even if it still exists. By starting this chain of events, the Romney-Ryan plan would weaken and eventually kill the program, in furtherance of Ryan's beliefs as expressed in his 2005 speech to the Atlas Society.

Second, Romney-Ryan's plan to repeal the Affordable Care Act would negatively affect those on Medicare. For example, repeal would reverse the act's significant expansion of Medicaid. In turn, those who lose Medicaid will once again be forced to seek their health care in emergency rooms rather than through primary care services. The uninsured will wait much longer to seek care, allowing their condition to become needlessly advanced and more costly to treat. Even when timely, the emergency room is a very expensive place to get this care. As now, these costs will be passed on to insured individuals, including those covered by Medicare, in the form of higher premiums and longer wait times in crowded emergency rooms.

Third, many of the elderly who get by on a combination of Social Security, Medicare and modest savings must nonetheless eventually go on Medicaid when they require assisted living accommodations. This financial arrangement will be foreclosed to them since Romney-Ryan want to significantly cut Medicaid.

Fourth, the ACA saves $716 billion in the Medicare budget and uses the money to expand Medicaid as well as shoring up the Medicare bond fund to year 2024. Repeal of ACA loses those advantages.

The Premise is Wrong: Medicare is Not the Problem. Contrary to the Romney-Ryan's assumptions, Medicare does not need a radical change in order to save it. True, its costs are rising, but not due to an inherent problem with the program itself.

Medicare is an insurance program — insurance premiums increase with the rising costs of the events being insured against. As the Urban Institute has reported, Medicare costs per person have been fairly constant in recent years. Still, even if costs per person continue to level off, the total number of persons will continue to rise as the baby boomers age, and in turn total Medicare costs will continue to rise. This will also be true for any private Medicare substitute that attempts to cover all these people.

In fact, the Congressional Budget Office estimates that, with its weak cost-containment features, the Romney-Ryan plan will increase costs and simply shift the burden of these increased costs from the government to seniors.

Those over 55 should be wary of efforts to appeal to their selfishness. They should not take comfort in the notion that the changes in Medicare and Medicaid proposed by the Romney-Ryan plan are someone else's problems.

William L. Holahan, below left, is emeritus professor of economics at the University of Wisconsin-Milwaukee. Charles O. Kroncke, retired dean of the College of Business at UW-M, also recently retired from USF. They are co-authors of "Economics for Voters." They wrote this exclusively for the Tampa Bay Times.

Flawed Medicare diagnosis, remedy 10/03/12 [Last modified: Wednesday, October 3, 2012 8:41pm]
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