What is Obamacare: Why the Affordable Care Act is a Better Medicare Solution Than the Romney Voucher Plan

Impact

Since 1965, Medicare has been the main form of health insurance for the retired. Loved by senior citizens, one of the most influential voting blocs in the United States, we can assume Medicare will be around for a while. However with the baby boomers retiring and a working to retired ratio at 3.5:1 when it was 4:1 just 12 years ago there has been a concern that we can no longer afford Medicare. Funded through a 2.9% payroll tax, the Medicare Hospital Insurance trust fund relies on a large working population supporting a small-retired population. This has not been a problem since the start of the program up until 2007, but recently there has been a concern that Medicare is going bankrupt. So the question is, who has a better solution, Obama or Romney?

Under the Affordable Care Act, Obama’s health care plan passed in 2010, benefits will remain the same with only slight changes. Beneficiaries will see a reduction in their Part B premiums (physician and outpatient care) and select services will now be offered free of a deductible or co-pay, including mammograms, bone scans, and depression and diabetes screening.

The Affordable Care Act’s (ACA) main changes to Medicare involve reducing wasteful costs that don’t improve quality health outcomes. The Congressional Budget Office expects to save $716 billion, from these changes, between 2013 and 2022, and allow the Medicare Hospital Insurance Trust Fund to be solvent for an additional 12 years. The four main issues the bill tackles are –– improvement of quality of care, reform of delivery system, appropriate pricing of services and modernizing the financing systems, and fighting waste fraud and abuse.

Improving quality of care will save $15 billion dollars over the next 10 years by changing the way in which hospitals receive Medicare payouts. Starting October 1 of 2012 hospitals are reimbursed based on quality of care rather than quantity. Quality is measured through measures such as unnecessary hospital readmissions, hospital acquired conditions, and quality of care for the top five conditions Medicare patients are treated for. Medicare costs will also be cut by bundling payments for serving patients with End Stage Renal Disease, a benefit added to Medicare in 1973 and shown to be extremely costly.

Appropriately pricing services and modernizing financing systems is expected to save the most over the next 10 years, projected at $369 billion. Ending overpayments to Medicare Advantage Plans, which on average cost 114% of a traditional plan but show no improvement of health outcomes, will save $145 billion by providing incentives for these private plans to reduce costs. In addition, fighting fraud, abuse and waste will save $4.9 billion over 10 years through many small techniques. Along with these changes the ACA calls for an increased payroll tax of 4.7%, an increase from 2.9%, for high-income earners only, starting in 2013 to help foot the bill for Medicare.

Romney has said in nearly every campaign speech that his first day in office he will repeal the ACA. If Romney goes through with this plan Medicare’s trust fund is projected to run out by 2017. However, Romney has also said he will keep favorable parts of the ACA, yet has not specified what these are. Most likely, Romney will not repeal these cost saving measures. However, with Romney “approving messages” like this, (an ad stating Obama is cutting $716 billion from Medicare to pay for Obamacare, a plan not for senior citizens) Romney is definitely sending mixed messages.

That said, Romney calls for other drastic changes for Medicare, endorsing the Ryan-Wyden plan, a proposal set forth by Paul Ryan and Democratic Senator Ron Wyden. This plan would alter Medicare for anyone under 55 years old by turning Medicare into a voucher system. Medicare beneficiaries could either purchase traditional Medicare from the government, or use the voucher to pay the premium of a plan from a private insurer. Any leftover money would be put into a Health Savings Account, which could be used for deductibles and co-pays throughout the year. Choosing a plan that is more expensive than the voucher would require the beneficiary to make up the difference, paying out of pocket. Romney’s plan relies heavily on private competition driving down the cost of Medicare, however that might be expecting too much from the free market, given that private health care costs are rising just as fast as Medicare’s, both well over GDP growth.

Romney’s voucher system is still vague on the specifics, with his own website saying,  “premiums, co-insurance, and deductibles [will be] set at the level necessary to cover its costs”, having many seniors wondering if they will be able to afford a plan under Romney. It is also unclear how much the voucher will be for, so it is not possible to calculate what percentage of a typical plan the voucher will cover. A recent study by the Kaiser Foundation, which modeled a hypothetical plan based for the Ryan-Wyden plan, found that 6 out of 10 Medicare beneficiaries would pay higher premiums than they do currently under this new plan. Unless health care spending starts to slow drastically, another concern of Romney’s plan is that the voucher's worth will grow inline with the GDP, while health care costs grow faster (currently at 5% compared to GDP at 3%) resulting in vouchers that lose value every year.

Romney’s plan is so vague that it is hard to say whether it will save the government money or not. If he chooses to not repeal the ACA and puts in a voucher system there is a good chance his savings will be greater than Obama’s. However as promised, if Romney repeals Obamacare, Medicare will become insolvent before his voucher system even takes effect in 10 years when current 55-year-olds are 65. With Romney’s message unclear on Medicare it is safe to say that Obama’s great measures to ensure the continuance of Medicare puts him as the clear winner on this hot issue.