ANALYSIS: GOP Budget Would Decimate Medicare with $20 Trillion in Cuts

May 2011 ANALYSIS OF GOP PROPOSAL TO END MEDICARE Committee on Ways and Means Minority Staff

The House-Passed Republican Budget Ends Medicare and Replaces It with a Voucher

Cuts spending by up to $20 trillion by 2050

The House-passed Republican budget wages a triple blow against America's senior citizens and people with disabilities. First, it eliminates Medicare's entitlement to needed benefits by changing it from a defined benefit to a voucher. In doing so, it slashes trillions of dollars from health care funding for services formerly covered by Medicare. Second, it actually accelerates overall growth in health spending, even though it reduces the government's exposure, by forcing individuals to rely on more costly private plans to deliver health care. Turning the program over to private insurers also eliminates all the delivery and payment system reforms from the Affordable Care Act and previous laws. Finally, it shifts substantial health costs onto seniors and individuals living with disabilities. In short, the House-passed Republican budget increases overall health care cost growth at the expense of the retirement and financial security of the nation's senior citizens and other vulnerable populations.

Republican Budget Ends Medicare; New Voucher Program Cuts Spending by up to $20 Trillion. The House-passed Republican budget, which nearly every Republican voted for, undermines the federal government's commitment to the health and financial well-being of senior citizens and people with disabilities by abandoning Medicare's guaranteed benefit and converting it to an underfunded voucher. According to the Congressional Budget Office, spending on Medicare is projected to be 7½ percent of GDP in 2050, while spending on the Republican voucher plan would only be 3¾ percent of GDP in that same year.[1]This change translates to a $20 trillion cut in federal spending for needed medical services for senior citizens and people with disabilities. These numbers are compared to CBO's "alternative fiscal scenario," which optimistically assumes a permanent fix to the Medicare physician payment system will take place.

The House Republican budget, however, does not invest a single penny in a physician fix, a fact that CBO revealed in a recent analysis.[2] Thus, an alternative point of comparison is CBO's lower "extended baseline," which assumes extension of current law until 2030, and thus excludes any changes to Medicare's physician payment system in those years. Even under that calculation, the spending for the new voucher program still declines by more than $12 trillion from what would otherwise be spent on Medicare in 2050.

Note: Committee staffanalysis converts Congressional Budget Office estimates of Medicare spending as a percent of GDP[3] into 2010 dollars using CBO's projection of real GDP through 2050.[4] An analysis using nominal GDP (unadjusted for anticipated inflation) would show a drop in federal resource of greater magnitude ($24 trillion and $39 trillion by 2050 under the Extended Baseline and Alternative Fiscal Scenario respectively). Conversely, an analysis displaying the net present value of these dollar figures using Medicare spending as a percent of real GDP would show a smaller drop in federal resources ($5 trillion and $8 trillion by 2050 respectively).

Results in Faster Growth in Health Spending. Ironically, the Republican budget swings the growth in health spending in exactly the wrong direction. First, moving to the voucher effectively repeals all the delivery system reforms in the Affordable Care Act that contribute to the nonpartisan Medicare actuaries projection that growth in overall health spending will slow by an average of 0.3 percent annually after 2016. Second, it forces beneficiaries into private plans that will be much more expensive than coverage under traditional Medicare. CBO's recent analysis states that under the Republican voucher proposal "total health care spending for a typical beneficiary…would grow faster than such spending for the same beneficiary in traditional Medicare under either of CBO's long-term scenarios." (emphasis added).

Shifts Costs to Seniors, More Than Doubling Their Health Care Spending by 2022. The House Republican plan forces Medicare beneficiaries into costly private plans and gives them a voucher that intentionally fails to keep pace with rising medical costs. The end result is a doubling of annual health care costs for seniors and individuals with disabilities, from roughly $6,200 to more than $12,500.

Not Reform, Just Repeal. Since 1965,Medicare has often led the way in developing and adopting major payment reforms that drive change system-wide. Examples include the movements to prospective payment systems for episodes of care (rather than cost-based reimbursement), incentives to encourage the meaningful and widespread use of health IT, and other key advances. The ACA included a number of new proposals to tackle concerns about health care cost growth and care coordination. Eliminating Medicare's ability to drive delivery system and payment reforms that improve care and slow growth moves the nation in the wrong direction.

[1] Source: Congressional Budget Office, Letter to Hon. Paul Ryan, April 5, 2011, table 2, and Additional Information on CBO's Long-Term Analysis of a Budget Proposal by Chairman Ryan, April 8, 2011 (online athttps://www.cbo.gov/ftpdocs/121xx/doc12128/04-05-Ryan_Letter.pdf).

[2] Ibid

[3] Ibid.

[4] Source: Congressional Budget Office, Excel workbook entitled "Data Underlying Scenarios and Figures" (online at https://www.cbo.gov/doc.cfm?index=11579).

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