Wednesday, June 27, 2012

Medicare changes likely no matter who wins the election

No matter who wins the upcoming election, sooner or later our political system will have to deal with the imbalance between government revenues and spending. And the solution is likely going to involve significant change to Medicare.  

During the coming decade the aging of the population and rising costs for health care will continue to exert pressure on the federal budget. The number of people age 65 or older will increase by about one-third between 2012 and 2022— from 14 percent of the population to 17 percent— substantially raising the cost of Social Security, Medicare, and Medicaid. Spending on these three programs is expected to increase at an average annual pace that will far outstrip general economic growth.

Because of the aging of the population and rising costs for health care, is seems unlikely that the tax and spending policies that are currently in effect will be maintained. To keep deficits and debt from bankrupting our economy, policymakers will need to allow federal revenues to increase to a much higher percentage of GDP, or make major changes to Social Security, Medicare and Medicaid, or pursue some combination of the two approaches. 

The bottom line: Expect big changes in Medicare over the next few years. 

Medicare changes that might be included in a “grand bargain’

Most political commentators seem to think that Congress will not be so irresponsible as to drive us off the currently scheduled “fiscal cliff.” The common wisdom is that Congress and whoever is elected President will wait until after the election and try to come up with a "grand bargain" during a lame duck session of Congress, or in early 2013.  If a grand bargain is out of reach we may see another short term postponement that would continue tax and spending policies (and destructive uncertainties) for another year or two. 

Most commentators and politicians agree that eventually our lawmakers will have to come up with a plan that deals with the big issues: Taxes, Medicare, Medicaid, and Social Security. 

Here are some thoughts on how Medicare may be affected.

Premium Support 

Unless there is a democratic sweep, the next Congress will be poised to change the Medicare payment and delivery system to one which includes an option based on premium support. That is the Republican model championed by Congressman Paul Ryan and supported by Mitt Romney. 

Under a premium support approach, the government would tell Medicare beneficiaries to find insurance plans on their own in the private market; the government would provide vouchers that would pay the bulk of the premiums.

Representative Ryan originally proposed shifting all new Medicare recipients to the private market in 10 years. But, confronted by the Democrats charge that he was trying to end Medicare, Ryan adopted a new version would allow people the option of staying with traditional Medicare. Governor Romney has embraced this general concept.

The Simpson Bowles report recognized that “a voucher or subsidy system holds significant promise of controlling costs, but also carries significant potential risks. To assess the balance of benefits and risks it recommended using the federal employees health benefits programs as a pilot to test premium support. 

Even if we enter 2013 with a continuation of politically divided government, it seems like moving Medicare toward a premium support model will have a good chance of being included in a grand bargain. 

Increase in the Standard Age of Eligibility 

Another significant change we may see with Medicare is an increase in the standard age for eligibility. One idea would be to gradually move the age from 65 to 67. Even the Obama administration has indicated a willingness to accept an increase in the Medicare eligibility age, so this change is likely to survive any election results.

Higher Premiums 

We are also likely to see a continuation of the trend toward requiring higher income retirees to pay higher premiums for their Medicare Parts B and D coverage.

Other changes being discussed include:
           Limiting the coverage obtainable through Medicare supplement (Medigap) insurance so that beneficiaries will have to pay more out of pocket;
           Adding co-payment requirements for some services that are now fully coverage. An example would be to impose a co-pay requirement on the first 20 days of Medicare covered care in a skilled nursing facility.  

In general, it looks like people are going to be paying more for their Medicare coverage in the future, and they are going to be getting even more of that coverage through private insurance companies.

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