Any Sensible Long-Term Budget Proposal Must Reform Medicare

The volatile process to produce a budget and prevent a partial government shutdown has yielded some enticing proposals from the Republican end. Rep. Paul Ryan of Wisconsin produced a momentous budget which, over ten years, would spend a staggering $6.2 trillion compared to the White House budget. The official proposal of the Republican Study Committee would push things even farther, including partial reforms of Social Security.

The partisan standoff in Washington, however, ensures that these sensible budget plans will face a tenuous path towards becoming law. This fact is extremely disheartening, as both proposals seriously attempt to reform the financial explosion that is Medicare. (As I’ve previously noted, Ryan’s gutsy proposal is the first serious attempt to streamline Medicare in recent memory).

Currently, Medicare spending is growing at an annual clip of 7.2 percent, vastly faster than the rest of the economy. Over the next decade, Medicare spending is expected to double, and its unfunded liabilities over the next 75 years are approximately $31 trillion dollars- a number beyond human comprehension.

Despite the unfathomable amount of money going into Medicare, the product it tenders is woeful. The federal government reimburses doctors and hospitals with the same amount of money, regardless of the quality or outcome of care given.  Thus, there is almost no incentive to perform efficiently or even adequately.

Furthermore, Medicare does not provide for catastrophic expenses, the real purpose of insurance. Instead, seniors face a $1,000 deductible for a single stay at the hospital. As a result, 9 out of 10 seniors purchase Medigap coverage to cover the difference. That’s right, an insurance policy within an insurance policy. This exemplifies the ludicrous nature of the current state of affairs in American health care.

Ryan’s daring plan would disassemble this broken machinery and transition into a “premium support” system. Seniors would choose a private insurance option subsidized by the federal government at defined contribution of $15,000.

The advantages would be manifold. Hospitals and doctors would be incentivized to provide better, more efficient care in order to attract business from seniors. Seniors who desire more expensive plans would pay the difference out of their own pockets.

Despite concerns that a defined-contribution plan would remove the so-called “safety net” for the vulnerable, Medicare would still regulate the insurers and approve the plans. This ideal plan would not take effect until 2022, which leaves those 55 and older with an abundance of time to make the proper adjustments.

Ultimately, the Ryan plan would ideally reduce federal health care spending down to 6 percent of the GDP, by eliminating ObamaCare and enacting reforms to Medicare and Medicaid. Not only would this save the country trillions and stabilize the program financially, but it would ensure better and more efficient quality coverage for Americans.

A government shutdown was very narrowly avoided, and any new budget is likely to avoid the contentious but necessary topic of Medicare. Sadly, this will prolong Washington’s policy of ignoring the inevitable insolvency of this program. Until Washington has the backbone to confront this monstrosity, any budget that is passed will be merely patchwork disguising a rotten foundation.