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Thursday, Aug. 30, 2012 08:57 am

How radical is Paul Ryan’s Medicare plan?

UIUC prof explains the issues

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Vice-presidential hopeful Paul Ryan’s controversial “Roadmap for America’s Future” included plans to transform Medicare from a program that directly paid the medical bills of seniors into a voucher-based system by the year 2022. In an interview with University of Illinois News Bureau business and law reporter Phil Ciciora, Richard L. Kaplan, a law professor and expert on taxation and retirement issues, discusses how a Romney-Ryan ticket could change Medicare for those under age 55.

How radical is Paul Ryan’s proposal to change Medicare?
For those age 55 and older, nothing would change. Anyone 55 years and older can safely ignore the chatter.

For those younger than 55, it would be a complete reconceptualization of the basic program. The Ryan plan would scrap Medicare’s current defined-benefit program in favor of a defined contribution styled “premium support.” That means the government would provide seniors with a designated amount of money to purchase health insurance from private insurers. In theory, that would allow seniors to choose from a variety of plans with different benefits, premiums and co-payment obligations.

But even that isn’t a new idea. A broadly similar plan was first considered at length during the Clinton administration.

Medicare Part D, which provides coverage for prescription drugs, operates on a very similar basis – private insurers receive government subsidies to provide various drug plans, and seniors select among the options that are available, paying more for greater coverage.

Basically, it would resemble the type of health insurance plans that many employers offer to their employees currently.

Medicare is an extremely popular program. Why change it?
To save the government money, plain and simple. The demographic challenges facing the program are pretty daunting with the imminent retirement of the baby boomer generation.

As medical costs increase, Medicare’s costs rise accordingly. Under the Ryan plan, Medicare’s costs would increase by the general cost of living, which is less than the increase in medical costs. As a result, much of the increase in medical costs would not be borne by Medicare, but by seniors.

Although the Ryan plan for Medicare would represent a dramatic change, Medicare is not immune to change, as I showed in my recently published paper titled “Ten Myths of Medicare.” Both Democrats and Republicans have reduced Medicare’s budget in virtually every budget cycle for the last 20 years, mostly on the providers’ side by reducing the amount the program pays out for services.

What’s likely to happen first – changes to Medicare, or repeal of the Affordable Care Act?
Even if the Republicans control Congress and the presidency, Medicare might not be their number one health care issue. The repeal of the Affordable Care Act could easily trump Medicare reform, simply because that act is not very popular among the GOP, and it’s a lot easier to take away benefits that haven’t kicked in than to reform an established program like Medicare.

Richard L. Kaplan is a law professor and expert on tax and retirement issues at University of Illinois Urbana-Champaign. To contact him 217-333-2499 or email rkaplan@illinois.edu.

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