The House of Representatives just approved Rep. Paul Ryan’s (R-Wisc.) budget proposal, which, among other things, would give seniors the option of receiving premium support payments from the federal government to purchase health insurance on a new, federally regulated Medicare exchange.

Congressional Democrats wasted no time before launching a “Mediscare” campaign attacking the proposal, similar to the one they waged last year. Democrats and their union allies have rolled out a series of advertisements targeting Republicans in competitive congressional races, claiming that they’d voted to “end Medicare.” Rep. Nancy Pelosi said that Ryan’s budget would “end the Medicare guarantee.”

The Democrats’ alternative appears to be simply postponing Medicare’s day of fiscal reckoning.

But that’s not tenable. The status quo will end Medicare as we know it. Congress must fundamentally change Medicare’s structure to rescue the program from bankruptcy.

Health care is the largest cost-driver in the federal budget — and has been the chief source of government spending growth over the past 40 years. Non-health government spending in both 1971 and 2011 accounted for exactly 17.1 percent of the nation’s GDP. Meanwhile, government health spending jumped from 1 percent to 5.6 percent of GDP over those four decades.

Medicare has been the locus for much of that spending. Expenditures in the program grew 7 percent in 2009 and 5 percent in 2010. Annual Medicare spending is set to double over the next ten years — to more than $1 trillion.

The entitlement’s fiscal problems threaten to preclude the federal government from spending on anything else — and exacerbate our looming debt crisis.

Enter the Ryan plan, which would introduce elements of competition into Medicare — driving down costs and encouraging providers and health plans to improve the quality of their offerings in the process.

The centerpiece of the proposal is “premium support” — effectively, a government payment to seniors to help them purchase insurance on a government-regulated marketplace or exchange.

The phrase was initially coined in the 1990s by Henry Aaron of the Brookings Institution and Robert Reischauer of the Urban Institute — neither of whom can be considered an ally of Rep. Ryan. As Aaron and Reischauer wrote then, “this framework lends itself to budget control in ways that the current system does not . [matching seniors to] the financial consequences of their choices.”

Under the Ryan plan, folks 55 years of age or older would face no changes to their Medicare benefits. Those younger than 55 would receive a subsidy to purchase insurance coverage once they retired, with both private plans and traditional Medicare competing for their business.

The subsidies they received would be based on the cost of the second-least expensive approved private plan or traditional Medicare, whichever was lower. And federal contributions would increase in accordance with a senior’s health status or age — to ensure that the plans available would remain affordable.

If a senior chose a plan costing more than the benchmark plan, he’d have to pay the difference — similar to how folks today pay for Medigap policies that cover additional services. If he chose a plan that costs less than the premium support payment, he’d receive a rebate.

To limit costs, the plan caps yearly increases in the level of premium support at the rate of GDP growth plus 0.5 percent. And that’s only a backstop. If competitive forces can drive cost growth further down, even
better.

The Ryan plan would also introduce a degree of means-testing by forcing well-off seniors to shoulder a greater share of their Medicare premiums. And it would gradually raise the age at which seniors become eligible to 67, by two months per year between 2023 and 2034.

The Congressional Budget Office (CBO) estimates that government spending would be an average of $7,400 per beneficiary under this approach. That’s 14 percent lower than under the status quo.

Some critics believe that the cap is too low — that it will force seniors to bear any future growth in the cost of health care on their own. Sen. Ron Wyden (D-Ore.) supported a previous iteration of Ryan’s plan that limited
the growth of premium support to GDP plus 1 percent. But he has not followed Ryan down to 0.5 percent. Aaron also believes that Ryan is too stingy.

But the government can’t afford to be much more generous. Medicare’s main trust fund will be empty by 2022.

Further, President Obama has proposed a similar growth rate for Medicare’s costs — only he’d empower the 15 unelected bureaucrats on his Independent Payment Advisory Board to decide where to trim costs. The Ryan plan, by contrast, empowers seniors to make those decisions.

Rep. Ryan’s proposed budget may change the way the government pays for Medicare — but it will save the program. Blind allegiance to the status quo will break the promise our nation made to seniors and end Medicare as we know it.

Source: http://www.forbes.com/sites/sallypipes/2012/04/16/ending-medicare-as-we-know-it-by-doing-nothing/