To Save Medicare, Change the Model

Published March 11, 2013

USA Today

House Budget Committee Chairman Paul Ryan is proposing important Medicare reforms as part of a 10-year balanced budget plan. He’s absolutely right to do so.

Medicare is not sustainable in its current form. It costs too much even as the quality of care it provides falls well short of what seniors deserve. The Congressional Budget Office estimates that Medicare’s costs will reach $1.09 trillion in 2023, up from $551 billion in 2012.

Without reform, the Medicare Hospital Insurance trust fund will be depleted of reserves in 2024. An insolvent Medicare is unfair to younger Americans who will need the program just as much as their parents and grandparents.

The solution can be found within Medicare itself. The drug benefit, enacted in 2003, is built on consumer choice and competition among private drug plans. This approach has worked well to provide access to drugs at an affordable price.

Surveys show that seniors are more than satisfied with the options available to them, and costs are under control. From 2006 to 2011, per capita costs rose an average of just 1.8% annually.

This is the model for Ryan’s Medicare reforms, which would be phased in for those under age 55 today. Seniors would get the guaranteed package of Medicare services from the health plan of their choice, and one of their options would be the traditional Medicare program.

The government’s contribution toward coverage would be based on the premiums charged by the competing plans. Every Medicare beneficiary could get coverage at no cost above the current-law premium requirement, and they could reduce their premiums by choosing less expensive options.

The alternative to this model is heavy government regulation of prices. That’s the approach taken in the Patient Protection and Affordable Care Act. The result will be impaired access to care for seniors.

As the law stands, the cuts in what Medicare will pay for services are so deep that by 2030, about 25% of hospitals will be operating in the red.

Today’s seniors rely on Medicare for access to needed medical care. Congressman Ryan’s plan honors that commitment even as it also secures Medicare for future generations.

James C. Capretta, a senior fellow at the Ethics and Public Policy Center, worked on health care issues during the George W. Bush administration as associate director of the Office of Management and Budget.

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