You are using an outdated browser.
Please upgrade your browser
and improve your visit to our site.
Skip Navigation

Who's Really Cutting Medicare? And How?

My latest Kaiser Health News column follows, although I'll probably have more to say on this subject after the long weekend:

Even before Tuesday's special election in New York, in which Medicare figured so prominently, congressional Republicans and their supporters had altered their rhetoric about the cherished government health insurance program. Instead of defending their plan to effectively end Medicare, at least in its current form, they accused Democrats of being the real culprits out to do in the program.

Their argument goes like this: Democrats enacted huge cuts to Medicare as part of the Affordable Care Act. President Barack Obama has since proposed even deeper cuts as part of his deficit reduction plan. These cuts will inevitably mean less care for seniors, one way or another. And so it is the Democrats, not the Republicans, who are out to destroy Medicare.

At least, that's what the talking points are. And, like most political claims, these have some elements of truth. Democrats really did enact substantial Medicare cuts as part of their health care reform law and Obama really has proposed still deeper cuts as part of a deficit reduction plan. And it's a good thing, too, because the financial burden of Medicare would eventually become unsustainable if the program keeps growing in the way that it has been. Reforming the program and, yes, slowing that growth is the responsible thing to do.

But the question for voters isn't whether the Democrats are cutting Medicare spending. The question is what effects those cuts would have -- and how they would compare to cuts that Republicans propose in their budget. Medicare cuts come in all shapes and sizes, after all.

The key distinction between Democrats and Republicans -- er, one of the key distinctions -- is that Democratic cuts to Medicare focus on the providers and producers of Medicare. The most obvious and well-known among these are reductions in payments to private insurance companies that offer seniors coverage through what's known as the Medicare Advantage program. This is basically an effort to eliminate some corporate welfare.

Less well-known but equally important are the Democrats' proposed reductions in payments to the rest of the health care industry. These reductions will take place alongside a series of experiments, offering financial bonuses to doctors, hospitals and other providers who can learn to operate more efficiently or effectively. The idea is that, together, these changes will nudge the health care industry in the direction of providing more care for less money.

The Republicans and their allies argue that all of these cuts will eventually affect beneficiaries negatively. Medicare Advantage insurers will stop offering extra benefits, doctors and hospitals will stop seeing so many patients, and so on. I don't happen to think they are right, for reasons I've explained previously. But even if they were correct, it's hard to see how Republicans could argue, simultaneously, that their changes would somehow leave seniors in better shape.

For one thing, notwithstanding their rhetoric, the Republicans have actually voted to keep most of those Democratic-backed changes in place for the next ten years. The dirty little secret of the House Republican budget, which most Senate Republicans just voted to endorse, is that it lets stand the health law's early payment reforms -- the very same ones Republicans and conservatives started attacking long before President Obama signed them into law.

Of course, after 10 years, the Republican Medicare plan diverges dramatically from the Democrats' health care plans. Starting in 2022, under the Republican scheme, the traditional, government-run Medicare insurance plan would not accept new retirees. At that point, all seniors would instead purchase a private insurance plan. Government would offer seniors a subsidy, to help seniors pay for the coverage. But the value of that subsidy would rise far more slowly than the price of medical care.

This is the essential point that Republicans and their supporters never mention. Over time, they would provide the program with dramatically less money than the Democrats would. It's difficult to find a hard estimate of how much exactly. But if you include proposed cuts to Medicaid (which pays for long-term care and other services the elderly use) and do some math based on the official Congressional Budget Office projections, you'll see that the Republican budget would reduce federal health care spending by an additional 7 to 9 points of gross domestic product by 2050. That's an immense difference.

Republicans claim, as Democrats do, that their plan will nudge the whole health care system in the direction of more efficiency -- not by changing the behavior of providers, as Democrats prefer, but by changing the behavior of consumers, in ways that will create a more vibrant and competitive market. It's a highly dubious argument, given that private insurance has higher overhead and less bargaining power than government insurance. (Remember, the Democratic plans would take money back from private insurers serving the Medicare population, for precisely the same reason.) But even if it were true, there's no credible expert who thinks the savings from competition would be large enough to offset the massive reduction in funding Republicans have in mind.

In short, it's true that Obama, the Democrats and their supporters have backed cuts to Medicare. But those cuts are smaller and more carefully designed than what the Republicans would impose. It's the difference between saving Medicare and destroying it -- no matter what the Republicans and their allies want you to believe.

This column is a collaboration between TNR and Kaiser Health News. KHN is an editorially independent news service and is a program of the Kaiser Family Foundation, a nonpartisan health care policy research organization, which is not affiliated with Kaiser Permanente.