Medicare & Baby Boomers

February 17, 2012 at 5:13 PM Leave a comment

A key issue in this year’s upcoming presidential election is the future of Medicare. Nearly everywhere you turn (e.g., 2012 Medicare debate is all about the baby boomers- Yahoo! Finance) people are embracing different ideas to address the shortfalls in Medicare funding. These changes will have a significant effect on health care providers and manufacturers because it has the potential to change how these companies are paid. Impending changes to Medicare will decide whether providers will work with an increasing number of private insurance companies or if they continue to work with government payers to reimburse for the use of their products. As the number of baby boomers enrolling in Medicare continues to rapidly increase at a rate of over 1.5 million enrollees per year1, the issue becomes more and more prominent. Although not a baby boomer myself, I am a potential future Medicare beneficiary, making the future of the program a concern for me as well.

The indicator of Medicare’s financial health that receives the most attention is the Hospital Insurance (HI) Trust Fund. Since 2008, the payments made from the HI Trust Fund have exceeded its total income2. Any basic level of accounting knowledge will tell you, when expenses surpass income, there’s a problem. These deficits support the importance of implementing changes to Medicare, and unfortunately shortfalls like this are projected to continue and accumulate over the next several years.

Representatives of both major political parties agree on certain alterations to Medicare. Some examples of agreed upon alterations include limiting the future growth of federal spending on Medicare by maintaining the current percentage and limiting future growth of its percent of the federal budget, increasing the amount of money coming from upper and middle class retirees through higher out-of-pocket expenses for beneficiaries, and raising the age of eligibility from 65-673 over time

As I touched upon before, the HI Trust Fund is an important indicator of Medicare’s financial stability. This fund is predicted to run out by approximately 20294.  Although this would not be an instant end to Medicare, that money is clearly an important factor to its functionality considering Medicare’s continued consumption on a year to year basis. Congress will compare the budget impact from reducing reimbursement advantages to those of others strategies, such as increases in payroll taxes and changing Medicare from a guaranteed benefit to a subsidy toward the purchase of private health insurance.

One of the biggest divides between political parties in this debate is on privatization of payment for care. Many Republicans would prefer to see increased privatization. Wisconsin Republican Representative and chairman of the House Budget Committee, Paul Ryan, introduced a proposal in April 2011 providing more competition to traditional Medicare by private insurance companies, while still keeping government-run Medicare as an option. Individuals enrolled in Medicare would receive a monthly payment to put toward whatever option they want, while those over 55 would not need to make any changes. Ryan’s plan has been supported by many other political figures such as Republican presidential candidate Mitt Romney as well as Democratic Senator Ron Wyden.

President Obama responded to Ryan’s plan with ideas of his own that involve slightly less savings, $4 trillion over 12 years opposed to Ryan’s $6 trillion over 105. However, these savings would be only partially achieved through cuts in spending, unlike Ryan’s proposal. About half of the savings in Obama’s plan would come from increases in taxes. President Obama has acknowledged privatization as a legitimate idea, but does not support it because he believes it will be too problematic6.

Increasing the number of private insurance companies assuming risk for Medicare beneficiaries, and the way in which they participate from a third-party administrator to covering the elderly as a subsidiary of the federal government changes where healthcare providers receive their payments from. Instead of the traditional government run fee-for-service program, private plans would make the payments, increasing their power in the Medicare system. This may also have an effect on MedSpan’s medical device clients and how their products are utilized. Certain drug therapies and procedures may not be covered or reimbursed in the same way or to the same extent under a private insurance plan as they are under Medicare’s government-run program, altering which devices are used. Privatization would help Medicare maintain a more consistent percentage of the federal government budget instead of continuing to grow. It would also increase the breadth of options beneficiaries would have, based on what different companies are willing to offer. Having more options will result in more personalized care to what each beneficiary wants and needs.

I believe Ryan’s proposal to be the best alternative that has been presented. The current system for Medicare has not proved to be sustainable, so I think making seemingly drastic changes to the structure will give the program the best shot of surviving. The federal government would have a simpler involvement in Medicare should Ryan’s plan be adopted. They will provide the necessary subsidies to beneficiaries, leaving those individuals to choose what is best for them from a broader pool of plans.

This is one of the most critical issues for our clients to keep an eye on, and they should analyze how different changes will affect their business. It is almost certain that some changes will be made, so beginning to prepare now will make for an easier adjustment in the near future.

Author: Jamie Notaro

Edited by: Robert Kaminsky & Ken Chiang



Entry filed under: Comparative Effectiveness Data, Evidence Plans, Healthcare Economics, Healthcare Reform, Hospital Care, Insurance Design.

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