Health Reform and Medicare: A Senior Moment

I don’t normally post more than once a day. But I’ve just got to say something about the nonsense that the Obama Administration is saying about health reform and Medicare, and the political box they’re in with seniors. The Administration would like us to believe that cuts to Medicare proposed to help pay for health reform will not have any effect on the benefits seniors receive from the program or how much they pay out-of-pocket for them.

As reported by the Associated Press (AP), during an AARP forum in July Obama said “Nobody is talking about cutting Medicare benefits.” AP also reports that Obama and his supporters say cuts to Medicare would strengthen Medicare by reducing fraud, abuse, and inefficiencies. They would also include reducing overpayments to insurance companies that operate private plans under the Medicare Advantage (MA) program.

What does the Administration think cuts to MA will do? They well know what will happen, as do I. MA and its predecessor programs have a long history, one that has been studied by health economists. The academic literature is unambiguous in its predictions that in response to lower payments MA plans will leave the market. Those that don’t will cut back on benefits and/or increase beneficiary cost sharing.  

Translation: seniors will lose access to some insurance options and/or pay more for less. Seniors are correct to be concerned about these reductions in benefits.

I hope, however, that many seniors will also recognize that the MA program is bloated. While some seniors may benefit from the overpayments MA plans receive, they do so at the expense of other taxpayers and other seniors who do not enroll in an MA plan (they pay higher premiums to subsidize MA expenses). I do not think it is right that MA plans are so generously paid. I agree with Obama’s plans to cut payments to MA plans. But he is not being honest when he claims that seniors will not see benefit reductions.

This is obviously a huge political problem. Seniors vote and in large numbers. That’s precisely why Obama and Democrats are spinning their Medicare plans so hard. That’s also why Republicans are positioning themselves as the guardians of Medicare. (This, by the way, is a tremendous political flip-flop.) Obama is in a political tight spot with seniors. He needs to draw money out of Medicare to pay for health reform. Seniors voting their narrow interests may turn on Obama because of it.

What to do? One thing that occurs to me that Obama might have done and perhaps still could is to acknowledge that MA plans will become less numerous and less generous. However, he should at the same time point out that unlike in the non-elderly market, Medicare beneficiaries have a public option in traditional fee for service Medicare. Benefits under that option are not being cut and all beneficiaries have access to it. Obama can say that he is looking for ways to preserve traditional Medicare, reduce the rate of increase in its premiums (which would occur if MA were not overpaid), and provide all Americans with the same health insurance security that seniors enjoy. That message is forthright and sounds like the win-win Obama is trying to convey with his less than honest claim of no cuts to Medicare benefits.

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