Medicare 2035: Older, sicker, poorer

Joseph Antos Wilson H. Taylor Scholar in Health Care and Retirement Policy, AEI
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We baby boomers are beginning to realize that the future of Medicare matters — to us, not just to our grandchildren. Most of us will still be around in 25 years, and we’re beginning to wonder whether Medicare will be there for us. It will be, but we will not like what we get unless Washington gets serious about overhauling the program.

Some may think that the president’s Affordable Care Act (ACA) already reformed Medicare. Congress reduced Medicare spending by $700 billion over the next decade by cutting provider payments rather than reducing benefits, or so the politicians claim. That money was not used to shore up Medicare for the future. It was used to fund new federal health programs, leaving Medicare in no better financial shape than before. Worse yet, those savings did not come from any significant change in the way Medicare operates. It is business as usual, and that business is obviously failing.

If those cuts actually were implemented, Medicare beneficiaries would face increasing difficulty getting care. Medicare would pay Medicaid rates — and Medicaid is notorious for providing very limited access to health care. So we would have coverage, but we would join the back of the line waiting for an appointment with the doctor.

That seems unlikely. Congress is not known for sticking to its guns when constituents are not happy, and making seniors wait for their health care is not something a politician wants to do. As we have seen played out many times in recent years, Congress will replace the big reductions in prices with small increases, hoping to put off any hard decision about how we will cope with Medicare’s rising cost until after the next election, or the one after that.

But the hard decision cannot be put off indefinitely. Medicare spending will soar from $575 billion this year to $1.1 trillion in 2022, and that assumes Congress will stand firm on the health care legislation’s budget cuts. The program’s cost is already growing faster than other major parts of the federal budget and the pace will pick up as the baby boomers age and need more health care. Without real Medicare reform, the rising cost would mean either large, ongoing tax increases or large, ongoing cuts in other federal programs. Taxing the rich will not cover the cost, and soon taxing the middle class will not be enough. Next up: choosing between paying more for inefficient health care and paying to educate our children, help the poor, and protect the country.

There is a better way, and it will pay dividends beyond the Medicare program. We can change the incentives in Medicare that drive up unnecessary program spending and that impose inefficiencies on the broader health care system. Reforming Medicare can transform health care delivery and lead to better value for everyone’s health care dollar.

Paul Ryan’s premium support proposal changes the terms on which Medicare operates. The unlimited subsidy of traditional fee-for-service Medicare rewards health care providers for delivering more services, even when they are of little value for improving the patient’s welfare. By giving seniors a fixed subsidy and a wide choice of competing health plans, including traditional Medicare, the incentive shifts from doing more to doing better. Health plans and providers will seek more efficient ways of delivering the right care at the right time, which could lower the cost curve and improve patient outcomes.

We can continue on the current path, attempting to control Medicare spending by ratcheting down on prices, regulating the activities of providers and health plans, and limiting the options for seniors. Or we can make use of the energy and innovation possible in the health sector by providing positive incentives to improve the way health care is delivered. The second path is not an easy one, but it is our best hope for making Medicare successful today and in 2035.

Joseph Antos is the Wilson H. Taylor Scholar in Health Care and Retirement Policy at the American Enterprise Institute.