Explaining the Medicare fight in a nutshell

Just about every major news outlet has done a “fact check” on the Medicare wars that erupted after Mitt Romney chose Paul Ryan as his running mate. And there’s a chance that you are still confused.

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So here’s a very, very simple – maybe overly simple – boiled down way of thinking about it. Both approaches are complicated, and there are a zillion caveats to what I’m  about to tell you.  But it’s a useful way of thinking about it for those of you who are still trying to work it out in your own head before you explain it to your readers/listeners/viewers.

Both President Obama and the Ryan budget cut the rate of growth of Medicare. Both tie Medicare growth to the growth of the overall economy. But they do it in very different ways.

Obama cuts health care providers* and relies on still unproven new health care delivery models like accountable care organizations to “bend the cost curve.” Beneficiaries are by and large untouched (they actually get some new benefits under the health law). But if Medicare costs still rise faster than the target rate, there’s a backup.  The Independent Payment Advisory Board (IPAB) makes recommendations on how to cut providers (not benefits) and bring spending in line.

Ryan vastly expands the role of  private insurers in covering the elderly and disabled on Medicare – and then counts on the plans to compete to contain costs. But if costs keep rising, the government doesn’t absorb those costs. The government will give seniors a fixed, or capped, amount toward their premiums. If it’s not enough, the beneficiaries have to pay the difference. (Next week we’ll look at whether insurers can keep costs down.)

The traditional approach to Medicare is an entitlement – a defined benefit. Ryan turns it into a “defined contribution” – you get X and no more.

To answer a question you may be asking: The health law does take $716 billion out of Medicare, as the Republicans charge.  That money does not all get switched to “paying for Obamacare.”

Some goes to expanding health coverage – and some goes to improving Medicare benefits and the hospital trust fund solvency. And some goes to improving how care is delivered to patients which benefits Medicare and non-Medicare populations alike (arguably more Medicare as they are older and sicker than the population as a whole). Exactly how much gets reinvested in Medicare and how much goes to the other provisions of the law? The Congressional Budget Office hasn’t made that calculation.

The AHCJ Health Reform Core Topic area has glossary entries, key concept explanations and blog posts that can help fill in the background. We also did a tip sheet last year on premium support. And this isn’t the last you’ll hear on this subject from us.

(*The health law cuts private insurers who participate in Medicare Advantage, changes the annual increases that hospitals, home health and nursing homes get, and levies new fees drug and device makers.)

Joanne Kenen (@JoanneKenen) is AHCJ’s health reform topic leader. If you have questions or suggestions for future resources, please send them to joanne@healthjournalism.org.