Presidential Campaigns and Medicare – What’s the Truth?

Guest blog by Tom Packer, 19th October 2012


With both Obama and Romney running campaign advertisements on Medicare, the presidential race is attracting lots of talk of ‘Medicare cuts’ and ‘abolishing Medicare’.

Medicare is the federal government’s healthcare funding programme for Americans aged 65 and older and younger people with disabilities. It has a price mechanisam whereby doctors are paid based on their skills and the time they spend on service – I have blogged about it before.

Romney’s attacks centre on the alleged cuts in Medicare, which were part of the legislation creating Obamacare.

By reducing planned spending on Medicare by $700 billion, Obamacare hopes to finance new healthcare spending. However, Republicans have a historic vulnerability on Medicare, thus it is unsurprising that Romney has been pushing these attacks hard.

There are a number of problems with the cry of ‘cuts’. The supposed cuts (as with every cut since Medicare was created in the mid 1960s) constitute a decrease in spending increases. The programme’s total budget will go on rising. Moreover, a large part of the cuts occur under the same procedure which has been used to try and control Medicare spending increases before –only to be repealed before they happen. Many expect them to be repealed again in the same way.

The Obama campaign argues they’re cuts in payments to providers, not to benefits. Some argue that previous experience suggests this will have little impact on quality. Others disagree, pointing out that many more providers refuse to take Medicaid patients (where the reimbursements are a good deal less than Medicare). Similarly, the cuts to Medicare Advantage are argued by some to be cuts in overpriced plans, and by others, cuts in plans that provide higher quality medical services than traditional Medicare.

There is also an ambiguity about the Ryan-Romney policies. Ryan’s budgets retained reductions in growth of Medicare expenditure in the short and medium term but the Romney camp is now stating very strongly that they will get rid of these reductions. How this fits with the efforts to reduce America’s extremely large budget deficit is not clear.

In the long run, Ryan and Romney propose a voucher system, a plan discussed previously, that will replace traditional Medicare – though only for those 55 and under (Medicare kicks in at 65). This plan provides a risk/geography price-adjusted voucher so that individuals can choose the insurance package and benefit combination they wish from competing providers. Those insurers in turn will be allowed to make partly capitated payments to hospital and physician networks, to remove incentives to overcharge/over provide care. Advocates of the Ryan plan believe the existing system encourages services to be performed by the most expensive doctors, for them to take longer than necessary, and that Medicare massively overpays doctors in areas where the cost of living and wages are cheap. Romney argues that traditional Medicare would remain available as an alternative (unlike in earlier versions of Ryan’s budget).

Critics worry that insurers would cherry pick and it would undermine Medicare’s ability to set prices, even if traditional Medicare exists as a backup.

Thus neither Obama nor Romney are cutting Medicare expenditures on current seniors. However, they have both supported changes that can legitimately be seen as a threat to Medicare recipients. 

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