Ryan budget would 'drastically reshape' Medicare

Budget touts Medicare premium support overhaul

Topics: Medicare, Reimbursement, Finance, Health Policy, Market Trends, Strategy

March 20, 2012

House Budget Committee Chair Paul Ryan (R-Wis.) on Tuesday unveiled his fiscal year (FY) 2013 budget proposal, which would establish a "premium support model" for Medicare.

As expected, the proposal is a "less stringent version" of last year's GOP Medicare reform plan, which would have altered Medicare from a fee-for-service program into one in which all beneficiaries purchase coverage on the private market.

The new Medicare plan—which Ryan created with Sen. Ron Wyden (D-Ore.)—would give beneficiaries a fixed subsidy to purchase either traditional Medicare coverage or private health insurance coverage.

Specifically, the plan would establish a competitive Medicare Exchange beginning in 2023 that offers eligible residents a choice between a traditional, fee-for-service Medicare plan and private health plans. The government subsidy would equal the cost of the second-least expensive private plan or the traditional Medicare plan, whichever is less expensive. Beneficiaries would be required to cover any costs above the government subsidy. 

Meanwhile, Ryan's budget calls for repealing the Independent Payment Advisory Board, which was created under the federal health reform law to reduce Medicare spending. Ryan's budget notes, "The difference is that this budget proposes to use competition to control costs, while IPAB under the president's proposals would use bureaucratic benefit restrictions."

In addition, the GOP plan would convert federal contributions to Medicaid into block grants, which states could use to structure their own programs.

Republicans hope that the inclusion of the Ryan-Wyden plan will rally Democratic support for the broader budget proposal. However, the Los Angeles Times notes that Wyden likely will oppose other provisions of the GOP budget proposal, limiting the overall budget's chances of winning bipartisan support.

CBO releases budget's projected spending impact
According to a Congressional Budget Office (CBO) report, Medicare spending would increase from 3.25% of GDP in 2011 to 4.75% of GDP in 2050 under Ryan's proposal. In comparison, CBO estimates that, under current law, Medicare federal spending would reach approximately 7% of GDP by 2050.

In addition, CBO estimates that, under Ryan’s proposal, Medicaid and Children's Health Insurance Program (CHIP) spending would shrink from 2% of GDP in 2011 to 1% of GDP in 2050. Under current law, CBO projects that Medicaid and CHIP would account for more than 4% of GDP in 2050 (Modern Healthcare, 3/20 [subscription required]; Taylor, AP/U-T San Diego, 3/17; Mascaro, Los Angeles Times, 3/16; Sherman, Politico, 3/18; Werber Serafini, Kaiser Health News, 3/20; CBO report, 3/20).

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