I Am Against Government Healthcare

ObamaCare's Nasty Surprise for Seniors

JOHN C. GOODMAN8/24/2016

Is there any other way to save Medicare without hurting quality of care for seniors or breaking the bank? (Ingram Publishing/Newscom)

Here are three things everyone who is on Medicare or who hopes to live long enough to qualify for Medicare should know.

First, Medicare is no longer a financial nightmare in the federal government's future. For the last half century health care costs per capita have been growing at twice the rate of income, both here and abroad. This has policymakers everywhere wondering how we are going to pay the medical bills for future retirees. But no longer is that going to be a problem in the United States. At least not as long as we have ObamaCare.

Unless some future Congress and some future president change the law, Medicare's growth going forward will stay in line with the growth of our economy – insuring that the program will remain affordable, indefinitely into the future.

How did that happen? On March 23, 2010, when President Obama signed the Affordable Care Act he signed into law a bill that wiped out more than $50 trillion in Medicare's unfunded liability. That's not a misprint. That's trillion with a "t". The savings are almost three times the size of our entire economy.

But ObamaCare is supposed to be about insuring the uninsured. It's about health insurance exchanges and the expansion of Medicaid. What has that got to so with the elderly and the disabled? A lot, it turns out. One of the most important sources of funds that are being used to pay for ObamaCare comes from cuts in future Medicare spending.

All this comes at a price, however. And this is the second fact you need to know.

A letter issued by the Medicare Office of the Actuaries at the time ObamaCare became law warned that Medicare fees paid to doctors and hospitals will fall increasingly behind what other payers will be paying in future years – threatening access to care. That warning was repeated in the latest Medicare Trustees report, which warns that by 2040 half of all hospitals, 70% of all skilled nursing homes and 90% of home health care services will not be able to survive under Medicare's increasingly skimpy fees.

These comments by the actuaries, however, have been ignored by just about everyone. In the latest Trustees' report they appear at the very end – on page 260. If you are a senior, you have to be really, really interested in numbers, tables and actuarial arcana before you'll ever get to the page where you learn that you may not be able to see a doctor when you need one.

Here is a third thing you need to know. Although Republicans have criticized the "Obama cuts in Medicare spending" as threatening access to care for the elderly, the GOP alternative essentially does exactly the same thing. The Paul Ryan budget – which was approved by almost all of the Republican members of the House –envisions a path for Medicare spending that is virtually identical to the Obama administration budget.

Essentially, the Republicans are planning to do what the Democrats plan to do: squeeze the providers. Only the methods differ. Democrats plan to reduce provider payments through a political mechanism. Republicans would do it through an economic mechanism -- by reducing premium support, thereby forcing health plans to reduce their costs by reducing what they pay doctors and hospitals.

Here is the bottom line: By 2075 the expected reduction in Medicare spending for the average senior under both Democratic and Republican budgets will equal about half of their Social Security income. Put differently, were the elderly required to make up for the cuts in Medicare spending, with increased out-of-pocket costs, that would be the equivalent of a 50% tax on their retirement income.

So as not to leave the reader totally depressed, let me add that there is yet a third way. The Democratic and Republican approaches to Medicare reform are what I call "eat your spinach" reforms. Somebody is always losing. Democrats try to hide the costs and often pretend that there are no victims. Republicans, on the other hand, seem to wear the infliction of pain as a badge of honor. If someone is not suffering, it can't be real reform.

What I propose, by contrast, is win-win reform. This is reform where everybody gains – the young, the old, the taxpayers and the current beneficiaries. It involves three fundamental changes to Medicare: special Health Savings Accounts that would let retirees manage at least one-fifth of their own health care dollars; letting physicians benefit from innovations that lower cost and raise quality; and investing payroll taxes in private accounts so future retirees can pay the bulk of their own health care costs.

The specifics are in A Framework for Medicare Reform, which I designed with the help of former Medicare Trustee Thomas Saving and our colleague Andrew Rettenmaier.

Goodman is president and CEO of The Goodman Institute for Public Policy Research