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Q & A: The Effect of Chairman Ryan’s Radical Budget Plan on Medicare

The House will vote this week on Congressman Paul Ryan’s budget plan for the coming year. CBPP Senior Fellow Paul Van de Water discusses some of the impacts this radical plan would have on Medicare.

Paul, the Ryan budget plan makes some pretty sweeping changes to health care, especially Medicare and Medicaid. How would Ryan’s proposal, specifically its Medicare changes, affect seniors?

The Ryan plan would gradually replace traditional Medicare with a system of cash-vouchers, which seniors and persons with disabilities could use to help them to purchase private health insurance coverage.  While this would save the government money, it would do so by shifting large health care costs onto seniors.

The Congressional Budget Office has estimated that when this program goes into effect in 2022, a typical 65-year-old, who would now be in the new system, would have to pay about $12,000 out-of-pocket for his or her health care spending rather than just about $6,000 as would be the case if traditional Medicare were to continue.

I might add that these costs would continue to rise even more in later years because the value of the vouchers would gradually shrink as years go by in comparison to the rising costs of health coverage.

A lot of people, including Chairman Ryan, say that it’s key to slow the growth of health care costs overall; that’s sometimes called “bending the curve.”  Despite raising costs for seniors, would the Republican budget plan at least accomplish this?

No, it would do exactly the opposite. The plan would actually increase health care spending because seniors would shift to private plans which are in fact more expensive than traditional Medicare, and that’s for two reasons:

  • First of all, private health plans have substantially higher administrative expenses than traditional Medicare, and
  • Secondly, they’re not able to negotiate comparably low provider payment rates, that is the rates that are paid to doctors and hospitals, as is traditional Medicare.

As a result, according to the estimates from the Congressional Budget Office, total health care spending on behalf of a typical 65-year-old Medicare beneficiary, when I say total that’s not just the government share, but the government share plus what the individual pays, would actually go up by 40 percent, under Congressman Ryan’s plan.

So, to summarize, the Republican budget plan would actually “bend the curve” up, not down.

The Ryan plan would also repeal the Affordable Care Act.  How would this affect Medicare and other health care costs?

By repealing health reform, the Republican budget plan would indeed get rid of many of the provisions in that legislation that we expect will contribute to slowing the rate of growth of health care costs over time. For example, it would repeal the Independent Payment Advisory Board, which is a new agency that is going to be established to recommend and, in fact, implement ways of reducing the growth of health care costs, while also improving the quality of care.

In addition, under the health reform law, Medicare will be instituting other reforms meant to improve efficiency and drive down costs. For example, one of those changes will be to reduce payments to hospitals with high readmission rates, that is, hospitals for which patients who are discharged, come back soon after their initial stay.

As another change, the Affordable Care Act will bundle payments to hospitals and to other facilities that provide care. So, for example, if a person is discharged from a hospital and then into a rehabilitation facility to continue that person’s treatment and recovery, all of those payments, both to the hospital and to the rehabilitation facility would be bundled into a single payment to encourage efficiency.

So the bottom line is that by eliminating traditional Medicare, Ryan’s plan would throw away the opportunity to use these tools to promote cost reduction throughout the health care system.

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