Richard L. Kaplan, the Peer and Sarah Pedersen Professor of Law at Illinois, is an internationally recognized expert on U.S. tax policy and retirement issues. In an interview with News Bureau business and law editor Phil Ciciora, he discusses the plans being floated to privatize Medicare in the wake of the Republican Party’s post-election control of both the presidency and Congress.
What’s the rationale behind privatizing Medicare?
The basic idea is that Medicare is presently an open-ended commitment by the federal government to pay the health care costs of older Americans and younger disabled persons. No limit, no cap. If you want to control federal spending, such open-ended entitlements cannot persist.
Accordingly, House Speaker Paul Ryan has proposed converting Medicare into a fixed payment – variously described as a voucher or “premium support” – that the Medicare beneficiary can then use to obtain health insurance in the private marketplace. If a person wants an insurance package that costs more than the fixed amount, that extra expense would be the responsibility of the beneficiary. But Medicare’s financial commitment would be predetermined, and the federal government could plan for the cost of this program in advance, unlike now.
Keep in mind that Speaker Ryan developed this proposal when he chaired the House Budget Committee, and his goal was to get control of the federal budget. If that is your mission, vouchers for Medicare constitute one way to accomplish it.
How different would Medicare on vouchers be for the average retiree?
For approximately one-fourth of current Medicare beneficiaries, this approach would not represent a major shift. These persons currently participate in the managed-care component of Medicare that is called Medicare Advantage. They compare the plans offered under this program in their geographic area and then select the plan they want, paying any additional monthly premium that applies. The nomenclature and mechanics of Speaker Ryan’s plan would be slightly different, but the basic approach would be very similar.
The vast majority of people on Medicare, however, would find a voucher-based approach very different and fraught with uncertainty. On the one hand, they would be able to shop around for a package of health benefits that conforms more closely to what they want than the current one-size-fits-all arrangement.
But on the other hand, they would be on the hook financially for the difference between what the plan they want costs and the amount of their Medicare voucher. Unless these current beneficiaries are “grandfathered in” and allowed to keep so-called “traditional” Medicare, they may see this change as the government breaking its promise and reducing their benefits.
For those just becoming eligible for Medicare, the use of vouchers may or may not be a popular move, but it would be a familiar one. Many private employers currently utilize this approach for their employees, and a variation of this “defined contribution” paradigm pertains to the Affordable Care Act’s marketplace exchanges, as well. It essentially imports the 401(k) approach from the pension area into health insurance.
To be sure, many critical details will need to be formulated to account for expensive pre-existing conditions and other factors. Otherwise, many Medicare beneficiaries will find that the amount of the voucher they receive will be inadequate to secure appropriate health insurance. After all, the Medicare population is generally less healthy than the pre-Medicare population, so voucher sufficiency will be an extremely important issue.
Trump never mentioned changing Medicare or Social Security while on the campaign trail. Why does this idea have currency now?
Speaker Ryan has been pushing the idea of “privatizing” Medicare for at least the last five years, but those efforts have not gotten very far. When Ryan was the vice-presidential nominee in 2012, in fact, most of the attention his proposal received was negative.
With the election of a Republican president, however, the thought in some circles is that there will now be a receptive audience in the White House to Speaker Ryan’s proposal. And it is certainly true that if the federal budget is a concern, then entitlements generally and Medicare specifically must be examined.
That said, it is not clear that President-elect Donald Trump favors radically changing Medicare along the lines that Speaker Ryan has proposed. During the recent presidential campaign, in fact, Trump took a position very similar to Hillary Clinton’s by declaring that he did not want to touch entitlements such as Medicare. So it remains an open question as to whether the Ryan plan will have a presidential supporter.