PRESIDENT OBAMA is wrong when he says that his health-reform proposals would not affect benefits received by seniors. Republicans are hypocritical when they assail the proposed changes and portray themselves as the defenders of Medicare against Democrats' predations.
Mr. Obama and fellow Democrats are not proposing changes in ordinary Medicare benefits. But they are pushing to trim billions of dollars -- the Senate Finance Committee would cut $113 billion -- from a program known as Medicare Advantage. These are managed-care-type programs that seniors can join instead of participating in regular fee-for-service Medicare with individual doctors.
The original idea was that such programs would be more efficient, and therefore cost less, than conventional Medicare. But Medicare Advantage plans cost, on average, 14 percent more than regular Medicare -- and membership has been growing rapidly, attracting one-fourth of seniors. They receive an extra subsidy from taxpayers and, through higher premiums, from other seniors. Alternatives to traditional fee-for-service plans should be encouraged, but not with such a tilted playing field.
Mr. Obama would end what he calls "unwarranted subsidies in Medicare that go to insurance companies -- subsidies that do everything to pad their profits but don't improve the care of seniors." That is not accurate. Part of the Medicare Advantage overpayments do go to improve insurers' bottom lines. But insurers are required to plow a significant part of this extra money into added benefits -- lower premiums or co-payments, for example, or vision and dental coverage -- which is why the plans have been growing so fast.
As Congressional Budget Office Director Douglas Elmendorf concluded, the proposed change "could lead many plans to limit the benefits they offer, raise their premiums, or withdraw from the program." The CBO projects that by 2019, 2.7 million fewer seniors would be enrolled in the plans than would have without the changes. However, those who chose such plans would still enjoy significant additional benefits: $42 per beneficiary per month, about half of what they would get under current law. Bottom line: Mr. Obama is right to pursue the policy change, but incorrect about benefit cuts.
For their part, Republicans bemoaning the change in Medicare Advantage and other cuts to the program have a conveniently short memory. House Minority Leader John A. Boehner (R-Ohio) on Wednesday assailed Democrats "for holding a press conference to pat themselves on the back for 'protecting' Medicare, even though their government takeover of the health care bill would cut seniors' Medicare benefits by $500 billion."
In fact, the net cuts in the House version would total $218 billion over 10 years, about 3 percent of projected spending; the Senate Finance Committee version could cut a net $377 billion over 10 years, about 5 percent. By contrast, in 1995 House Republicans proposed to reduce Medicare spending by 14 percent over seven years. The 1997 Balanced Budget Act, which passed with broad bipartisan support, contained Medicare cuts amounting to 12 percent of anticipated spending.
Republicans have a point, however, when they complain about trimming Medicare without taking the steps necessary to shore it up. Indeed, for all the difficulty the finance panel has had scrounging up the money to pay for the insurance expansion, it is going to have find $200 billion-plus more to pay for the "doc fix" -- the scheduled cut in physician reimbursements that Congress ends up reversing every year. Senate Finance Committee Chairman Max Baucus (D-Mont.) chose not to include funding the doc fix beyond next year, even though everyone recognizes that it will be done. It's fair to ask Democrats: Where, exactly, is that money to come from?