Why the Medicare Fight Matters to Americans Over 55

Now that Mitt Romney has picked Paul Ryan to be his running mate, a major national debate on Representative Ryan’s so-called ‘premium support’ plan has become certain. Ryan’s plan would replace the current Medicare program for workers under the age of 55. When eligible, they would receive a flat dollar amount—or voucher—that would cover part of the cost of a health insurance plan. The value of the voucher would be adjusted annually according to a pre-specified index. If health care costs increased faster than that index, enrollees would have to pay the added cost themselves or accept narrowed insurance coverage.

Because that plan would not apply to anyone age 55 or older, supporters claim that older Americans don’t ‘have a dog in that fight.’ For reasons I explain below, that isn’t true, even if one looks only at Representative Ryan’s Medicare proposal. Other elements of the Romney/Ryan health care program have even larger implications for older Americans, but let’s start with the Ryan Medicare plan.

Costs for Seniors Could Rise

The claim that the Ryan plan leaves American’s over age 55 unaffected is untrue because it is likely to raise the amount they have to pay out-of-pocket for insurance. The reason is technical, but easy to understand. The premium for those who stay in traditional Medicare under the Ryan plan would be calculated as under current law, but the average cost of serving those who remain in traditional Medicare would go up as private insurance companies market selectively to those with relatively low anticipated costs. The average cost of those who remain in traditional Medicare would therefore increase. As a result of this gap, the financing for traditional Medicare would become progressively less adequate, throwing into doubt the very survival of the program.

Other Benefits at Risk

The Romney/Ryan health program contains much more than Representative Ryan’s Medicare plan. Both candidates have sworn to seek repeal of President Obama’s health reform law, the Affordable Care Act. If that law is repealed, here is a short and incomplete list of the benefits for older Americans would lose.

  • Health reform closes in the infamous ‘donut hole’ in Medicare drug coverage—the gap of thousands of dollars of drug costs that the original drug benefit left open. If health reform is repealed, that benefit vanishes.
  • Gone also would be health reform’s coverage of cost sharing for prevention services.
  • Gone would be the subsidies that will eventually cover 75 percent of the cost of generic drugs.
  • Gone would be Medicaid benefits for millions of older Americans, working and retired, who would be newly covered by Medicaid expansions under the Affordable Care Act.
  • Until enactment of the Affordable Care Act, a 60-year-old who did not work for an employer that offered group health coverage had to pay high or unaffordable premiums for individual coverage or go uninsured. If health reform is repealed, they will return to that intolerable predicament.
  • The savings that are to be achieved under health reform would vanish. As a result, the Hospital Insurance Trust Fund would be exhausted in 2016 rather than in 2024, as projected under current law.

More portentous even than the specified health proposals—for both the elderly and the nation as a whole—are the budget targets that Governor Romney has pledged to meet. He promises to hold government spending to 20 percent of gross domestic product. Within that ceiling, 4 percent of GDP would be reserved for national defense. He has also pledged to balance the budget, although he has not said exactly when. Neither Governor Romney nor Representative Ryan is currently proposing to cut Social Security, although Mr. Ryan has proposed large cuts in the past.

Budget Alternatives

There are many ways to meet these broad budget targets, but none that would not entail massive cuts in programs affecting older Americans. One way—if Social Security is left untouched—would be to cut all government spending 29 percent by 2016 and 59 percent by 2022, the last budget year in his second term for which a president Romney would submit a budget. Those cuts would fall alike on every government program, including Medicare and Medicaid, food stamps, supplemental security income, government retirement benefits, and veterans benefits. Some programs might be spared, but if there were then others would have to be cut more deeply.

Governor Romney’s tax program would intensify the impact of these spending cuts for most older Americans. That tax program includes cuts in tax rates and specific additional breaks for many forms of capital income. He proposes to make up the revenue loss by ‘base broadening’—in plain English, by ending a wide range of deductions, exemptions, and credits. Mr. Romney has not specified which tax breaks he would end. But a recent analysis by the Urban/Brookings Tax Policy Center points out that if rates are cut as Mr. Romney proposes, there is no possible set of changes to the tax base that would avoid shifting tax burdens from those with incomes above $200,000 a year to those with lower incomes. This cross-over point applies to young and old alike.

The late and much beloved economist, Herb Stein, authored a now-famous quip: if something can’t possibly happen, it won’t. Reading the implications of the Romney program, one is hard pressed to believe that such a program could possibly happen. But it is even less possible to read the combination of proposals—the replacement of Medicare with a voucher, the proposed repeal of health reform and the many benefits for older Americans that it contains, the regressive tax program that Mr. Romney has laid out, and the budget program he has endorsed—and to believe that older Americans don’t have a dog in this policy fight. They have a whole kennel-full of dogs in this fight.