Privatizing Medicare: less care, more cost

Deficit-neutral at best but would hit seniors’ wallets hard

I was thinking today about a conversation I had with a health insurance executive last year. We both have kids in college, and I remarked to him that the Obama Administration had removed private lenders from student loans, saving both students and the government money. He surprised me by agreeing with me, adding that “kids’ education is kind of a funny thing to be making a profit on.”

That’s how I feel about Medicare: it’s a funny thing to be making a profit on.

Rep. Paul Ryan (R-Wisc.), the new chairman of the House Budget Committee,  wants to replace Medicare as we know it with a system of vouchers that seniors would use to purchase health insurance on the open market. At first glance the idea might be appealing – but as usual, the devil is in the details.

First of all, the formula Ryan uses to limit the growth of the payments to Medicare recipients is exactly the same formula last year’s health reform legislation uses: Medicare payments are allowed to grow one percent faster than the Gross National Product under either plan. That means Ryan’s plan will have zero affect on deficit reduction nor passes muster with the President’s State of the Union offer to work with the new Congress on further reforms that will reduce health care costs.

Secondly, as with the student loan programs reformed last year, privatizing is not expected to add anything to senior care – except more cost. According to the non-partisan Congressional Budget Office:

“Medicare’s current payment rates for providers are lower than those paid by commercial insurers, and the program’s administrative costs are lower than those for individually purchased insurance. Beneficiaries would therefore face higher premiums in the private market for a package of benefits similar to that currently provided by Medicare.”

So if Ryan’s plan is adopted, seniors will have the choice of much higher insurance costs or greatly reduced benefits. The only winners will be private insurance companies who replace the efficient, nationalized system we now have with a confusing blur of heavily marketed products like we have in the individual health insurance space.

Sometimes, free enterprise is anything but.