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Ryan Budget Would Increase Health Care Spending for Medicare Beneficiaries

House Budget Committee Chairman Paul Ryan (R-WI) and his fellow Republicans have repeatedly expressed concerns about rising health care costs.  But Ryan’s budget plan would increase total health care spending attributable to Medicare beneficiaries (the beneficiaries’ share plus the government’s share) by upwards of 40 percent, according to the Congressional Budget Office (CBO).

While raising total health care spending for Medicare beneficiaries, the Ryan plan would reduce the federal government’s contribution to cover those costs.  As a result, it would massively shift costs to the beneficiaries — in other words, the elderly and persons with disabilities.

The Ryan plan would gradually replace Medicare with a system of vouchers that seniors could use to help buy private health insurance.  Privatizing Medicare in this way would increase health spending substantially for two reasons, CBO explains.  First, private health insurance plans have much higher administrative costs than traditional Medicare.  Second, private plans cannot negotiate payment rates for health care providers that are as low as Medicare’s.

In 2022 (when the voucher system would go into effect), total spending attributable to a 65-year-old Medicare beneficiary would rise from $14,700 to $20,500, or almost 40 percent.  And this beneficiary’s out-of-pocket costs would more than double — from about $6,000 a year to over $12,000.  (See graph.)  These differences would grow even larger in later years, because the value of the voucher would not keep pace with the growth of health care costs.

Furthermore, the Ryan budget would repeal health reform and, with that, all of its provisions that hold out real promise of slowing the growth of health care costs: creation of an Independent Payment Advisory Board to explore ways to slow health care costs while improving quality of care, a new excise tax on high-cost health plans to discourage employers from buying them, and extensive changes to the health care payment and delivery system.

In the past, Medicare — not private health insurance companies — has been the leader in reforming the health care payment system to improve efficiency.  Under health reform, Medicare will institute further reforms, including accountable care organizations (physician-led organizations that take responsibility for the cost and quality of the care they deliver), reductions in payments to hospitals with high readmission rates, and bundled payments to providers for an episode of care.  By eliminating traditional Medicare, the Ryan budget plan would throw away the opportunity to use these tools to promote cost reduction throughout the health care system.