Democrats versus Republicans: Two different approaches to Medicare

The two party’s approaches are quite different.  Politicians realize that Medicare will not be able to continue on its current track. Something has to change since the country will simply not be able to afford the inexorable growth and expenditures. But politicians do not like to take away entitlements so proposals generally are couched in vague terms and often with positions that are unrealistic.

The Democrats’ plans are contained generally in the Affordable Care Act (ACA). The most commented upon action today is that the payments to Medicare providers will be reduced over ten years by $716 billion. These include reductions in hospital reimbursements and reductions in payments for Part C plans (Medicare Advantage.)

These cuts were instituted to free up dollars for other aspects of the ACA. Some would call this “robbing Peter to pay Paul.” But others would argue that it is simple prioritization of the funds available; kudos to those who accepted the responsibility for making the difficult decision. Basically these are “price control” mechanisms but price controls rarely work; providers will make up the difference with more visits, procedures, hospitalizations, etc. The proponents note that the plan only reduces payments to the providers; it does not cut benefits. How reducing provider payments will not ultimately result in less for the beneficiaries is a legitimate question.

Physician payments are scheduled to be cut by about 27 percent December 31, 2012. This was based on a formula established in 1997 called the Sustainable Growth Rate. It goes into effect unless Congress explicitly exempts it. Over the years, Congress has repeatedly given such an exemption but only for a short time, allowing themselves to claim that eventually they would enact the cuts and use them to offset budgets. The next cut is set for December 31, 2012. Almost certainly Congress – after the election – will create another short term exemption. Hardly a satisfactory way to govern.

The ACA recognizes that there is a shortage of primary care physicians (PCP) and that PCPs are under reimbursed. To this end, PCP reimbursements will be increased by about 10% over a few years’ time. Just how this increase corresponds with the 27% reduction is unclear.

The ACA also creates some new benefits for enrollees. Chief among them relates to prevention and wellness. Each enrollee is allowed an annual extensive preventive medicine evaluation with no deductibles and no co-pays. Medicare also pays the full cost of screening such as mammography and colonoscopy, cholesterol tests, etc. along with appropriate vaccinations.

The ACA created the Independent Payment Advisory Board (IPAB) whose job it will be to recommend steps to save dollars within Medicare without reducing benefits or without expecting beneficiaries to pay more – a tall order. They will be nominated by the President, ratified by the Senate, have prolonged terms and their recommendations become effective unless Congress votes them down en bloc, i.e., no cherry picking. Republicans have criticized this plan as allotting too much power in a small group of individuals not accountable to anyone. Democrats counter that the structure allows them to be honest brokers unaffected by competing constituencies.

Altogether, the Democrat’s plan is projected to reduce annual Medicare cost escalation from the currently expected about 4% to about 3.5% per year over the coming decade.

The Republicans’ proposals for Medicare are quite different in that they begin with fundamental structural changes that will convert Medicare from a defined benefit to a defined contribution plan. Congressman Paul Ryan, the Republication Vice-Presidential nominee, presented a proposal more than a year ago embedded in the House budget proposal. It was passed in the House only with all no votes from Democrats and died in the Senate. But then, after negotiations with Senator Ron Wyden, a Democrat, they offered a joint bipartisan plan. The essence is to allow individuals to stay with original Medicare or select a plan from a private insurer that offers the same benefits as Medicare. It has no effect until 2023, i.e. only affecting those less than age 55 today. At that time, the age of Medicare eligibility would gradually rise over ten years from age 65 to age 67. Second, each beneficiary could choose to remain with standard Medicare or chose a plan from a private insurer. The government would pay a set amount (“premium support”) towards either original Medicare or the private plan; the individual would have to pay any overage. The amount of premium support, according to the proposal, would be equal to the second lowest plan among the competing insurers, including Medicare, during the first year. Individuals of limited means would be able to purchase at discounted rates. The annual rate of rise of premium support would be limited to the rate of rise of the GDP plus 0.5%. This means that if expenses and hence premiums rose to a greater level, the individual would have to shoulder the excess. In short, the Republican plan counts on competition in the marketplace to drive down costs. In practice, this is very similar to the way the Part D drug benefit works today. Thus Republicans point to the success of Part D to bolster their claim. The Democrats fault this plan in that if costs are not controlled, the onus falls on the enrollee, the one most vulnerable, especially in older ages, and not the insurer nor the government.

Since the Republicans also state that they would repeal or largely repeal the ACA, then the added benefits to Medicare enrollees found in the ACA such as the annual health and wellness review and the preventive care/screening at no cost would presumably be repealed along with the IPAB and the enhanced reimbursement to PCPs. Presumably, the Republican plan would also be to cut physician reimbursement by the formula driven 27% of the SGR although, again, this is very unlikely to ever happen.

The end result of the Republican’s plan (or Ryan-Wyden bipartisan plan) would be to cut the rate of growth of Medicare to about 3.5%, the same as the Democrats’ plan but using a much different methodology.

Two approaches, two very different methodologies each attempting to achieve some slowing of the rate of rise of Medicare cost escalation. Both have pro and cons. Maybe after the election, the parties will come together and develop a truly bipartisan plan – we should hope so because it is surely needed.

Democrats versus Republicans: Two different approaches to Medicare   Stephen C. Schimpff is an internist, professor of medicine and public policy, former CEO of the University of Maryland Medical Center and is chair of the advisory committee for Sanovas, Inc. and the author of The Future of Medicine – Megatrends in Healthcare and The Future of Health Care Delivery- Why It Must Change and How It Will Affect You from which this post is partially adapted. 

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  • http://twitter.com/DevilDog_Doc DevilDog_Doc

    While you mention Senator Ron Wyden with regards to Ryan’s plan, you fail to mention that Wyden no longer agrees with the plan Ryan is putting fourth.

    • http://twitter.com/Drschimpff Stephen Schimpff MD

      Correct. . My understanding is that Senator Wyden still agrees with the basic proposal but he wants to have traditional Medicare paid for as it is today so that those who choose to stick with it can never be expected to have to pay out more. Of course it is hard for any Democrat to be supportive with Ryan now the Republican VP candidate. Let’s see if they can negotiate their differences once the election is over.

  • http://www.facebook.com/josh.hyatt Josh Hyatt

    Excellent summary of both plans. I wish that the parties would present their plans this way, instead of with all the posturing and rhetoric.

  • Robert Luedecke

    Thank you so much for an outstanding, non-partisan summary of both plans. The only fact I would like to add is that a recent retrospective study estimated that for a couple retiring today, the average amount needed to pay for their share of retirement medical costs not covered by Medicare is $250,000. To further increase the patient share for middle-class families appears to me to be a non-starter when looking for solutions. The most obvious starting point is to decrease the 25% of total Medicare expenditures that occur in the last year of life and are out of line with every other country.

  • Ellen Beth Levitt

    Nice summary, Dr. Schimpff. To help bring down health costs, we need more are resources going into informing people about how to stay healthy and prevent disease, and engaging them into being an active partner in managing chronic illnesses. I believe that people are hungry for that information and will appreciate it when it’s presented in a way that’s straightforward and easily to understand.