Medicare: How Paul Ryan's budget would change it

Medicare would be transformed under Rep. Paul Ryan's 2012 budget released Tuesday. Future Medicare recipients would get fixed payments to purchase private insurance.

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    House Budget Committee Chairman Paul Ryan (R) of Wisconsin touts his 2012 federal budget, which proposes reforms to Medicare, during a news conference on Capitol Hill in Washington Tuesday.
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The long-term budget plan released Tuesday by House Republicans would fundamentally transform Medicare, the huge program upon which US seniors rely for health-care coverage.

Right now Medicare is a fee-for-service program which itself pays for health care procedures for most beneficiaries. Under the GOP plan, drafted largely by Budget Committee chairman Rep. Paul Ryan of Wisconsin, it would be changed into a program which subsidizes the purchase of health insurance by individuals.

Medicare’s spiraling costs make it the biggest driver of the nation’s long-term government debt, said Congressman Ryan Tuesday during an appearance at the American Enterprise Institute. That means the status quo for the program is unlikely to continue, he said.

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“The question is not if we reform Medicare. The question is when and how we reform Medicare,” said Ryan.

Current Medicare beneficiaries, and those approaching retirement age, would not be affected by the GOP’s proposed changes. Instead they would apply to people currently 54 years of age and younger.

This cohort, when it enrolls in Medicare, would receive a fixed annual payment for insurance from Uncle Sam. This payment would be higher for those with greater health-care needs and would be adjusted for the cost of health care in particular areas.

Beneficiaries would then purchase insurance from private providers on a health exchange, a sort of supermarket where plans compete for customers. It is a structure derived from a plan drawn up previously by Ryan and Alice Rivlin, a Brookings Institution economist and former budget director under President Bill Clinton.

It is also similar to the health-exchange plan contained in President Obama’s health-care reform law. The GOP proposal released Tuesday calls for that law’s repeal.

This Medicare exchange would be “tightly regulated,” according to the Republican long-term budget. Insurers would have to promise to insure all Medicare beneficiaries, even the least healthy.

Ryan on Tuesday stressed that the plan is not a voucher system, which would send subsidy checks to beneficiaries. It is a “payment support” plan, he said, under which the government would pay an individual’s subsidy directly to insurers.

Medicare’s prescription-drug benefit now works this way, Ryan pointed out.

“The whole point is that it works more like things people are already familiar with,” he said.

Making health care something seniors purchase from their own pockets would unleash the power of free market competition, according to Ryan. Customers would gravitate to programs that offered higher value or greater quality, he said.

Critics counter that the Medicare subsidy inevitably would shrink relative to health-care costs due to the high rate of medical inflation.

“The House Republican budget proposal should be accompanied by a ‘Grandma Beware!’ sign,” said Ron Pollack, executive director of Families USA, a health-care advocacy group which supported President Obama’s health-care legislation.

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