The president’s State of the Union message may have sort of resolved the question: “Will he or won’t he touch Medicare? The answer: he probably will, a conclusion based on his cryptically grand rhetoric. The president called for those who care deeply about Medicare to “embrace the need for modest reforms—otherwise our retirement programs will crowd out the investments we need for our children.” Vague enough!
Next came some “specifics.” Obama said he was prepared to enact reforms that will achieve the same amount of healthcare savings by the beginning of the next decade as those proposed by the Simpson-Bowles commission. The Simpson and Bowles reference probably flew over many heads. Three years ago, the president appointed the commission to recommend steps for reducing the deficit. It was chaired by the former Wyoming senator, Alan Simpson, and the former Clinton chief of staff, Erskine Bowles, and composed of Democrats and Republicans. They could not agree on final recommendations, but issued a report anyway. It’s time to dust it off.
The Simpson-Bowles plan called for a global budget for all federal government healthcare spending, and for limiting healthcare outlays to the rate of GDP growth plus one percent. And it laid out several changes to Medicare, with price tags for each adding up to billions.
What’s significant is that the proposals shift some of the cost of care from the federal government to seniors, along the lines of the bill introduced by Tennessee Republican Sen. Bob Corker, which we parsed last week. Like Corker’s bill, Simpson-Bowles would require seniors to pay one $550 deductible instead of separate deductibles for various Medicare services. And like Corker, seniors would have to pay $7,500 of their expenses out-of-pocket. As we wrote last week, that would be tough for millions of beneficiaries, considering that half of them have incomes of $24,000 or less.
Simpson-Bowles also restricts the amount that insurance companies can reimburse a beneficiary for medical expenses under a Medigap policy—the “skin-in-the-game” method of controlling medical costs, meaning that if seniors have to pay more they will use fewer medical services. Indeed, the Simpson-Bowles document asserts that Medicare’s “benefit structure encourages over-utilization of health-care,” a point state insurance commissioners have found dubious. So to fix this “problem” and make seniors pay more, Medigap policies would be prohibited from covering the first $500 of expenses and only 50 percent of the next $5,000 of expenses a beneficiary racks up.
Was the president hinting that he was prepared to embrace that kind of cost-shifting?
The Simpson-Bowles blueprint also opens the door for converting Medicare from social insurance into a voucher plan. Remember that’s what Wisconsin Rep. Paul Ryan proposed to do when he was running for vice president, and the president strongly opposed it. But Simpson-Bowles proposes a pilot project: changing the Federal Employees Health Benefits Program into a voucher arrangement, by giving each worker a fixed amount to buy health insurance and letting retired workers use that subsidy to pay for health insurance premiums. Simpson-Bowles argued that such a test would provide “real-world experience” with vouchers. Would the president go for a test drive?
He did mention that he would ask the “wealthiest” seniors to pay more, whatever that means. The Kaiser Family Foundation estimates that some changes in that vein can eventually result in seniors with incomes around $47,000 range in 2012 dollars paying higher premiums. Most important, the president is “open to additional reforms from both parties so long as they don’t violate the guarantee of a secure retirement.” That, too, could mean anything—good, bad, indifferent, or, possibly, devastating to seniors and their “secure retirement.” Obama left the devil hidden in the details.
The media didn’t delve into the Simpson-Bowles part. Most didn’t mention it. Medpage Today did, but then it isn’t The New York Times, which simply noted in a news analysis that Obama gave a nod to put entitlement programs on the table.