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GOP Proposals on Medicare Could Shift Costs to Senior Citizens, other Beneficiaries

This is week when Republicans show their hand for cutting Medicare, Medicaid; yesterday House Budget  Chairman Paul Ryan (R-Wis) gave a glimpse of what's to come; GOP hits elderly in states, too

By Mary Agnes Carey, Kaiser Health News Staff Writer

Republicans Also Slash States' Spending on Elderly

AARP Says Texas Dishonors Elders

While the Republicans in Congress are attacking programs for seniors from Washington, the GOP is also making big cuts in the states. The Texas House, for example, on Sunday slashed funding for nursing homes (Abilene Reporter-News). Texas also slashed funding for public schools, college aid (San Antonio Express-News). The AARP, however, said the House bill “dishonors Texas’ elders.” (Read statement below in separate box).

>> Kaiser Health News Roundup of State Actions

April 4, 2011 - Amid the buzz about a possible government shutdown over this year's budget looms a more difficult question: What to do about entitlement programs, especially Medicare?

Politicians of all stripes have been decrying the nation's soaring debt and say that taming entitlements is crucial to curbing spending. So far, President Barack Obama hasn't proposed big changes.

But some Republican leaders have called for a major overhaul of Medicare, a $520 billion program that covers nearly 47 million older and disabled Americans. Given the political peril involved in tampering with Medicare, the question is: How serious are the Republicans?

The answer: Plenty serious.

This week, House Budget Committee Chairman Paul Ryan of Wisconsin unveils his proposed budget for 2012. In an appearance on Fox News Sunday, Ryan refused to give final details of his proposal but said he would dramatically slow the growth rate of Medicare by adopting a fundamental change called "premium support." Ryan also said he would propose turning Medicaid, the state-federal program for the poor, into a block grant program. Altogether, he said, his budget save more than $4 trillion over 10 years.

House Majority Leader Eric Cantor, R-Va., said last week: "Most of us, 54 and younger, are not going to be able to enjoy the same type of programs that are in existence now."


Texas House Appropriations Budget Devastating to Seniors

Slashing funding by one-third would deny critical services, putting seniors’ lives at risk

AUSTIN, TEXAS -- The preliminary budget just passed by the House Appropriations Committee would balance the state's finances on the backs of Texas’ most vulnerable seniors, AARP officials said today. House Bill 1 would cut one-third or more from the current funding levels for critical long-term care programs, including cost-effective community care services and nursing homes.

Ollie Besteiro, President of AARP Texas, said the proposed cuts to Medicaid-funded nursing homes and community-based long term care are unacceptable. Under the proposed budget, home health care agencies would struggle to even pay minimum wage to attendants, causing many agencies to go out of business. Since two-thirds of Texas seniors in nursing homes rely on Medicaid to partially fund their care, many nursing homes would struggle under the cuts to hire quality staff or to even stay in business.

“Long term care support for our seniors, already stretched to the limit, simply cannot withstand cuts of this magnitude,” Besteiro said. "It adds insult to injury."

Besteiro said that for the more than 125,000 seniors in community-based long-term care services – such as the Primary Home Care Program and the Community Attendant Services – the funding cuts would severely reduce the supply of home care workers, pushing more frail seniors into inadequately funded nursing homes.

"Texas has done a good job of developing cost-effective alternatives to nursing home care," added Besteiro. "Since these community programs cost less than a third of nursing home care, the rate cuts proposed by the committee make no sense at all, either from a financial or human perspective."  

Direct care workers in Texas often make about minimum wage for what is typically very demanding and intensely personal work. Because of this, it will be much more difficult for seniors who need care at home to find reliable attendant services, funneling them into already underfunded nursing homes.  Texas already pays the second lowest nursing home reimbursement rates in the country and AARP maintains there is a strong relationship between the number, skill level and longevity of nursing home staff and the safety and dignity of Texans in nursing homes. 

“The proposed Medicaid provider rate cuts would force nursing homes to cut staff, placing the lives of more than 54,000 vulnerable Texas nursing home residents at risk,” Besteiro said.

Earlier this year, AARP surveyed its members on the state budget shortfall and found that three out of every four members (76%) oppose cutting health and human services, including long-term care services for older persons. The opposition to such cuts came across party lines (Democrats, 77%; Independents; 68 %; Republicans, 57%). The survey of 1,501 members has a sampling error of plus or minus 2.5%.

AARP has more than 2.2 million members in Texas.

>> More at AARP Texas Site

With a presidential election coming up next year, some observers say it's unlikely anything big will happen involving entitlements before 2013, at the earliest, but that won't stop the debate. Here is a guide to some of the ideas being discussed, especially in Republican circles, on changing Medicare:


The age for full Social Security benefits is now 66 and will reach 67 in 2027. Some analysts – including Ryan and Alice Rivlin, who was budget director for President Bill Clinton -- argue that it makes sense to slowly raise the Medicare eligibility age from 65 to 67. People are living longer and retiring later so they don't need Medicare as early as their parents did, they say.

How Much Would It Save? According to an analysis by the Congressional Budget Office, gradually increasing the Medicare eligibility age would save the federal government $125 billion over the next decade.

The Gain: People who are still working at 65 and get health insurance at work could stay on their employers' plans for another two years, thus slowing Medicare spending. Assuming the health law survives, people without job-related insurance would have more alternatives than they do now: They could buy coverage -- even if they are sick -- on the new exchanges being set up under the health law and may qualify for subsidies to help purchase insurance.

Or, if they are lower income, they might be eligible for Medicaid, the state-federal program for the poor that will be expanded sharply in 2014. A gradual phase-in of the higher age requirement means that current beneficiaries and those near retirement would not be affected. "The impact of that takes a long time to hit," said Joe Antos of the conservative American Enterprise Institute.

The Pain: Health care costs that are now borne by Medicare for people 65 and 66 would be shifted to individuals, employers and states, according to a new report by the Kaiser Family Foundation. (KHN is an editorially independent program of the foundation.)

If the health care law were repealed, some people without employer insurance might not be able to afford coverage or get insurance at any price, especially if they had pre-existing medical conditions. Those people might delay needed treatments, which could eventually increase Medicare's cost to treat them.


Republicans, and some Democrats, have long thought that spending could be slowed if patients, including Medicare beneficiaries, had "more skin in the game" – in other words, put up more of their own money for health services. Some have suggested raising seniors' share of the Medicare Part B premium (which covers doctor visits and other outpatient services) from 25 percent to 35 percent and imposing co-payments for home health services or the first 20 days of a skilled nursing facility stay.

How Much Would It Save? The home health co-payment would save $40 billion over the next decade for the federal government; the skilled nursing co-pay would save $21.3 billion, according  to the CBO. Increasing the beneficiary's share of Part B would save $241 billion over 10 years.

The Gain: Raising beneficiaries' share of Part B premiums would bring the program closer to its original 50-50 split between the federal government and beneficiaries, proponents say. And greater cost-sharing for services would discourage overuse of care, they add.

The Pain: Opponents say beneficiaries already spend a big chunk of their incomes on medical care. In 2006, one in four spent 30 percent or more of their incomes on health expenses; one in 10 spent more than half, according to the Kaiser Family Foundation.

Requiring seniors to pay more could discourage people from getting needed medical care. "When you think about this population, which is sicker and uses health care more, what does it mean that they have to pay more and are living on a fixed income?" said Vicki Gottlich, senior policy attorney with the nonprofit Center for Medicare Advocacy.


Rep. Ryan, in a blueprint for entitlement overhaul he wrote in 2008 and continues to update, calls for a sharp, fundamental change: Transforming Medicare into a voucher program for future beneficiaries, starting with people who are now 54 and younger. Instead of being entitled to a specific package of benefits, beneficiaries would be given a voucher to spend on private insurance.

On Fox, however, he said he would instead propose "premium support" plan to overhaul the seniors' program. Ryan says that under that proposal, beneficiaries would choose Medicare coverage they like and the government would pay a specific percentage toward the premium. The beneficiary would be responsible for the rest.


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In his comments, Ryan drew a sharp distinction between vouchers and premium support. There are technical differences. For example, vouchers tend to be a specific dollar amount with growth pegged to an inflation gauge or the growth in the economy plus one percentage point. Under premium support, enrollees would likely get a certain percentage of their premiums covered by the government. But how different the two approaches are depends on how they are designed. They are both geared toward curbing government spending.

How Much Would It Save? Although CBO says Ryan's earlier Medicare proposal would reduce federal spending, it has not estimated a specific dollar amount. 

The Gains: Ryan has said that switching to vouchers would give Medicare financial stability. His goal would be same with premium support. The voucher idea has also gained the backing of Rivlin, who is now a senior fellow at the Brookings Institution.

The Pain: Critics see danger ahead. Most voucher proposals peg the growth in value of the voucher to general inflation or economic growth. But the cost of Medicare benefits is likely to be higher. That raises concerns that costs will slowly be shifted to beneficiaries. Some health analysts say the same could occur under a premium support model, depending on how it's designed. Ryan says, under his plan, wealthy beneficiaries would pay more for Medicare than less-affluent seniors. 


Medicare charges beneficiaries separate deductibles for their hospital care (Part A) and for outpatient and physician services (Part B). This year, in Part A, beneficiaries pay $1,132 for each hospital stay, and enrollees also pay daily co-payments for extended hospital and skilled nursing care. For Medicare Part B, the annual deductible this year is $162. According to CBO, 30 percent of beneficiaries in Medicare's fee-for-service program have supplemental insurance known as Medigap coverage to help with those costs.

Some proposals, including one advanced by the president's deficit panel chaired by former GOP Sen. Alan Simpson and former Clinton chief of staff Erskine Bowles, have suggested combining the Part A and B deductibles into one $550 yearly deductible. That could reduce beneficiaries' costs for hospital care but be more expensive for seniors who mostly use Part B. In addition, some proposals suggest a 10 to 20 percent co-payment for all services until beneficiaries reach a catastrophic limit. Others argue for making that $550 deductible ineligible for Medigap coverage so that beneficiaries are responsible for covering the cost of those initial services.

How Much Would It Save? Instituting the change in deductibles, co-pays and Medigap rules would save about $93 billion over the next decade, CBO estimates.

The Gain: Medicare would save money, but not just because beneficiaries were putting up more of their own. If Medigap plans were less generous, analysts believe beneficiaries would be more careful about spending and that could help lower Medicare costs.

The Pain: Once again, this proposal would shift costs to individuals.

About Mary Agnes Carey

Summary of Newspaper Reports

Major Changes For Medicare, Medicaid In GOP's 2012 Budget

Even as Congress faces a showdown this week on 2011 federal spending, both parties are gearing for the 2012 budget battle.  

The Associated Press: GOP 2012 Budget To Make $4 Trillion-Plus In Cuts

The head of the House Budget Committee, Rep. Paul Ryan, says President Barack Obama is "punting on the budget and not doing a thing to prevent a debt crisis." Ryan tells "Fox News Sunday" that GOP budget-writers are looking at cutting $4 trillion-plus in spending over the next decade (Daniel, 4/3).

CNN: House GOP Budget To Call For Big Changes To Medicare, Medicaid

The plan, to be released Tuesday, calls for a controversial overhaul of Medicare, the health care program for seniors, and imposes deep cuts in Medicaid, which provides health benefits to low-income Americans, according to House Republican sources with knowledge of the proposal. ... The GOP aims to save billions of dollars in revamping Medicare, a large contributor to the massive federal deficit and debt (Bash and Walsh, 4/3).

Fox News: GOP Budget Plan to Cut More Than $4 Trillion Over Decade, Rep. Ryan Says

[The proposal] would serve as the Republicans' official response to President Obama's proposed $3.7 trillion budget for 2012. ... Ryan said Sunday that the GOP proposal would reform the tax code but focus on spending cuts and entitlement reform to achieve savings. Though the plan is expected to mostly leave Social Security reform for another day, Ryan proposed big changes to Medicare and Medicaid. For Medicaid, he called for a system of block grants to the states, so the states can "customize" coverage for the poor (4/3).

National Journal: Sunday Talk-Show Live Blog

Responding to criticisms that he is cutting and not reforming health care entitlements, Ryan says "Yes, we do increase and grow Medicare and Medicaid spending, albeit not the at the pace they're growing at [now], because they're unsustainable." (Fernholz and Madigan, 4/3).

Politico: Ryan On GOP Budget: We Are Giving Dems A Weapon 

Ryan elaborated on the Republican-proposed reform to Medicare reform, distinguishing it from his Roadmap voucher program as "more along the lines of what I proposed with Alice Rivlin, the Democrat in the Obama administration, which is a premium support system. It’s very different from a voucher system…it works like the Medicare prescription drug benefit similar to Medicare advantage that we have today, which means Medicare puts a list of plans out there that competes for your business and seniors pick the plan of their choosing, and then Medicare subsidizes the cost of that plan," while not changing the entitlement program for those 55 or older (Cogan, 4/3).   

The Wall Street Journal: GOP to Propose Cutting Spending by Over $4 Trillion in 10 Years  

Under his plan, Mr. Ryan said, Medicare would offer a "list of plans out there that compete against each other for your business, and seniors pick the plan of their choosing. And then Medicare subsidizes that plan" (Barkley, 4/3). 

Reuters: Factbox: Republican Ryan's earlier budget plan has clues

A bold proposal by Ryan last year, dubbed a "roadmap for reform," advocated keeping federal taxes at no more than 19 percent of gross domestic product ... Ryan's [earlier] plan would de-link healthcare from employment, where most U.S. citizens now get their health insurance, by repealing the tax exclusion for group health insurance. It would give individuals and families a refundable tax credit to buy insurance (Dixon, 4/3).

The New York Times: Budget Battle To Be Followed By An Even Bigger Fight

The plan ...  will be the most ambitious Republican effort since the November elections to put a conservative stamp on economic and domestic policy. It involves far greater stakes for Congress and for President Obama — substantively and politically — than the current fight over spending cuts. ... House Democrats, who are preparing an alternative budget, say the Republican approach would cut off aid to some of the neediest Americans ... Some Republicans had wanted to delay putting forward Mr. Ryan’s plan until this year’s negotiations were completed. They were worried that introducing another set of proposals might confuse the debate and give Democrats two targets to exploit in their effort to persuade voters that Republicans were going too far in slashing programs (Hulse, 4/2).

Some of this information is reprinted from with permission from the Henry J. Kaiser Family Foundation. You can view the entire Kaiser Daily Health Policy Report, search the archives and sign up for email delivery. © Henry J. Kaiser Family Foundation. All rights reserved.


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