Ryan Medicare Plan: How it Will Impact Millennials in 40 Years

I turn 25 at the end of this month, which for most people would mark a milestone birthday that provokes thoughts of the past, present, and future, time spent wondering where it all went right or wrong. Not me though; I ask the next most obvious question: What is the Medicare program going to look like when I turn 65 in EXACTLY 40 years, if the Ryan/Romney plan is implemented?

This may be a useful thought exercise, but it’s not entirely clear that anything I predict will actually pan out. For one thing, 40 years is a long time away, and the political forces that will take root between now and then are entirely unpredictable. Secondly, the two-tiered health system which the Affordable Care Act likely puts in place over the next several decades will lead to massive changes in the way we receive care and subsequently, the way that the system is reshaped to correct this problem. How health care in America will look in 2052 is anyone’s guess, but this is what I predict the system will look like in 40 years to the average beneficiary (me), if it were implemented in today’s environment:

1. What kind of plans will be available to me? The Romney/Ryan plan offers me a subsidy to choose between an array of approved private insurance plans, or pre-2012 Medicare. My guess is that the “traditional FFS Medicare” option – included to alleviate concerns that the proposal will disrupt care for those who are satisfied with current coverage – will probably be less attractive to me than a single plan offering greater care coordination and comprehensive benefits. Those are two very important reasons that the current Medicare Advantage program is so popular among seniors today, and there is little reason to think that seniors’ preferences will change in this respect in the decades to come. If anything, this new market of over 50 million seniors demanding increased coordination will only sharpen providers’ abilities to offer these services, so I expect it to be an integral part of my care plan by the time I reach that age. 

2. What will be offered in these plans? This is one of the biggest flaws in the Romney/Ryan reform proposal. As currently written, plans would be required to offer benefits at least as comprehensive as Medicare currently provides. That sounds like a reasonable consumer protection, but what it really does is force seniors (like me) to pay for things we may not want or that will not benefit us. True innovation in coverage design can only occur when insurers are forced to respond to the preferences of their consumers, dropping some benefits that people do not want and adding others that people do value.

I’ll put it this way: What’s innovative about the iPhone is not that they can sell the same phone for X percent less every year, it’s the iPhone itself. It’s a brand new bundle of goods and services packaged in a desirable way that consumers are willing to pay for at the price listed. If Apple were not allowed to drop features from the first generation of iPhones (for the sake of protecting consumers from inadequate device capabilities), we would not have the improved product we see on the shelves today. By being forced to cover a wider and more comprehensive array of benefits than consumers really want or need, I worry that these plans will become bloated, expensive, and poorly-adaptable to changes in consumer preferences.

3. Who will offer these plans? This is an interesting question because the answer is based largely on many trends playing out in health care today. Because of the rise of new payment models between both private and public insurers and health care providers, large health systems and physician groups are getting paid in a way that shifts much of the risk previously borne by insurers onto providers. We saw this trend back in the 1990s, with dismal results. The conversations I have had with health care executives recently indicate that they have acknowledged the problems from the last time around and are more confident now, but that alone does not guarantee success. If they do manage to figure it out, though, I expect large hospitals and health systems in my area to be the direct providers of new insurance products – and thus the recipient of my subsidy – rather than the traditional insurers. But if “Accountable Care Organizations,” or ACOs, wither like the HMO model of the 90s did, the usual suspects – United, Aetna, Cigna, Wellpoint, and so on – will most likely be the ones directly vying for my business.

4. Will I be able to afford these new plans? President Obama consistently reminds me that the average senior will have to pay an additional $6,400 per year to cover the difference in costs between the price of coverage and size of the subsidy. It’s a questionable figure, since that number is based on Congressional Budget Office estimates that are prohibited from taking into account the savings that will result from the competition between plans to reduce costs, which is kind of the central mechanism to containing costs in the first place.  But let’s assume that number is accurate. It may sound alarming to seniors today who do not have the spare income to fund that difference, but this law is not being dropped on my head tomorrow. Assuming I receive 15 years of benefits at $6,400 per year, I know that I will need to eventually spend close to $100,000 out of pocket (OOP) during that time. That is certainly not pocket change, but it is also not unrealistic for someone at 25 to be able to save that much money over the course of their working life to pay for it. While it is a big number, it doesn’t scare me because I know it is just another consideration I need to factor in when planning my retirement. Because the Ryan/Romney proposal applies only to people under 55, people will have at a minimum 10 years to plan for these additional costs, and even more so for people closer to my age. In addition, those with higher-than-average health costs will also receive an enhanced subsidy, helping them further cover the difference.

Some of this is good news, some is not. While I believe this reform is a step in the right direction, it is certainly not a silver bullet solution by any means. In a later post, I’ll address the overall budgetary impact this proposal will have on the health care system and discuss the ways in which it is better and worse than the current path we are on. In the meantime, I am just thankful my participation in the Medicare program is four very long decades away.