Why we must end Medicare ‘as we know it’

Fee-for-service is open-ended reimbursement; the government’s main tool to control Medicare’s costs is to hold down reimbursement rates. Doctors and hospitals respond by ordering more services to offset the rate limits. For all its flaws, say Ryan’s critics, this system beats his. Indeed, the Congressional Budget Office has estimated that in 2022, Ryan’s plan would be more than a third costlier than the status quo, because Medicare’s size makes it more effective at restraining reimbursement rates.

If the CBO is correct, Ryan’s plan fails; beneficiaries’ out-of-pocket costs would roughly double to cover the added expense. But the CBO may be wrong. When a voucher system was adopted for Medicare’s new drug benefit, the CBO overestimated its costs by a third; the Centers for Medicare and Medicaid Services’ overestimate was 42 percent. When fundamental changes are made to a program, the green-eyeshade types can’t easily predict the results. Moreover, as health expert James Capretta notes, “managed care” plans in the Medicare Advantage program in 2010 did not have higher costs than Medicare’s fee-for-service for similar coverage.

Robert J. Samuelson

Samuelson writes a weekly column on economics.

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Under Ryan’s plan, incentives would shift. Medicare would no longer be an open ATM; the vouchers would limit total spending. Providers would face pressures to do more with less; there would certainly be charges that essential care was being denied. The Obama administration argues that better results can be achieved by modifying incentives within the existing system. Perhaps. But history suggests skepticism. Presidents since Jimmy Carter have made proposals to control spending, with meager results. From 1970 to 2008, Medicare spending per beneficiary increased an average of 9 percent annually.

It’s Ryan’s radicalism vs. President Obama’s tinkering. Which is realistic and which is wishful thinking? This important debate should rise above cheap political rhetoric. Burdened by runaway spending, Medicare “as we know it” is going to end. The only questions are when and on whose terms.