American College of Physicians: Internal Medicine — Doctors for Adults ®

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Is this the end of Medicare and Medicaid as we know them?

From the June ACP Internist, copyright 2011 by the American College of Physicians

By Robert B. Doherty

President Obama and House Republicans have issued starkly different proposals on the future of Medicare and Medicaid. President Obama would preserve Medicare and Medicaid pretty much as they are today—that is, guaranteed entitlement programs—accompanied by reforms to cut the rate of growth in health care spending. House Republicans would place explicit limits on the amount that federal and state governments would contribute to providing medical care benefits to the elderly, the disabled and the poor.

The GOP proposal to restructure Medicare and Medicaid was included in a budget framework developed by House Budget Committee chair Paul Ryan (R-WI). The Ryan budget was approved by the House of Representatives on April 15 on a party-line vote. All but four House Republicans voted yes while every Democrat present voted no. The resolution would convert Medicaid from a shared federal-statement entitlement program to a block grant. States would get a set amount of money from the federal government that they could use as they see fit to provide coverage to the poor. Existing federal requirements relating to Medicaid eligibility and benefits would be eliminated. But the newfound state flexibility comes with a catch. States would get almost a trillion dollars less over the next decade to fund health care for the poor.

The Ryan plan would also gradually convert Medicare from an open-ended entitlement program to a premium support program. Future beneficiaries would be given a set dollar amount to go out and buy private health insurance coverage with certain specified benefits. But because the federal contribution would only go up each year at the rate of overall inflation, not the rate of increase in health care costs (which history suggests will considerably outstrip inflation), beneficiaries over time will pay more and more out of their own pockets. Congressman Ryan proposes to ease the transition by allowing people who are now age 55 or older to stay in the traditional, government-administered Medicare when they turn 65, but anyone younger would be offered only the premium support program.

According to the Congressional Budget Office, “A typical beneficiary would spend more for health care under the GOP budget because private plans would cost more than traditional Medicare, and the government’s contribution would grow more slowly than health care costs, leaving more for beneficiaries to pay.” The CBO also concluded that to maintain current service levels in the Medicaid program under the Ryan block grant proposal, “States would probably need to consider additional changes, such as reducing their spending on other programs or raising additional revenues,” or “alternatively, they could reduce the size of their Medicaid programs by cutting payment rates for doctors, hospitals, or nursing homes; reducing the scope of benefits covered; or limiting eligibility.”

In a speech delivered a few days before the House passed its budget, the president rejected the GOP plans for Medicare and Medicaid, pledging that neither would happen as long as he is president. Instead, he proposed to lower expenditures on Medicare and Medicaid by building on reforms already authorized by the Affordable Care Act: research on the comparative effectiveness of different treatments and paying physicians and hospitals for the value, instead of the volume, of services provided. He also proposed to give more clout to an expert advisory committee, created by the ACA, which would recommend ways to achieve more Medicare cost reductions. If spending exceeds the target rate of growth, the group’s recommendations would automatically be implemented unless Congress enacted an alternative plan to save a comparable amount. The president proposed that the allowable target growth rate be set at a lower level than permitted by the ACA.

Critics of the president’s approach say that he that he hasn’t put forth a realistic plan to reduce Medicare and Medicaid spending, and that without it, it will be impossible to put a significant dent in the federal budget deficit. Many Republicans, and at least a few Democrats, also do not want to give so much authority to an unelected group of experts to come up with the answers.

The Ryan plan almost certainly will not become law as long as President Obama is in the White House and Democrats maintain a narrow edge in the Senate. But it is expected to be the Republican baseline for contentious negotiations on enactment of legislation to allow the federal government to borrow more money to meet its obligations to holders of U.S. debt. Such “debt-ceiling” legislation must be enacted by late May or early June to prevent the U.S. from defaulting on its debt, but many Republicans and some Democrats have vowed not to vote for an increase in the debt without an agreement on deeper spending cuts.

Regardless of the outcome of the current battle over the budget and the debt ceiling, President Obama and House Republicans have offered voters in the 2012 election a compellingly different vision of the role of government as it relates to health care. It is often said that elections have consequences, and voters’ answers to these questions in 2012 may be the most consequential for American health care since Medicare and Medicaid were created almost 60 years ago.

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