The editorial board of The Washington Post, no organ of conservative opinion, is absolutely right: “Medicare as we know it is not sustainable,” and the “ultimate solution” is structural reform. Bingo.
The right structural reform is to expand Medicare’s defined-contribution financing (routinely called “premium support”) as it broadly exists today in Medicare Part D to the entire Medicare program.
As the Post’s editors observe, consensus does not yet exist on Capitol Hill for comprehensive structural reform. However, there are several short-term, bipartisan proposals compatible with structural reform that can improve the program, trim the debt, and reduce the dangerous financial pressures that threaten Medicare’s viability.
The Post’s key recommendations—yielding an estimated 10-year savings of $420 billion—largely track The Heritage Foundation’s proposed changes for traditional Medicare as part of its comprehensive budgetary reform proposal, Saving the American Dream. Among their key proposals:
- Gradually raise Part B premiums from 25 percent to 35 percent of total program costs. As the Post’s editors note, the Congressional Budget Office (CBO) has estimated a 10-year savings of $241.2 billion, while sparing 18 percent of the poorest seniors from any “additional burden” on their pocketbooks. It should not be overlooked that in 1966, when the program started, Medicare required seniors to pay 50 percent of total Part B costs. So asking them to pay 10 percent more, phased in incrementally, is not a radical prescription. It should also apply, as Heritage proposes, to Medicare Part D premiums.
- Streamline Medicare’s cost-sharing rules and restructure Medi-gap coverage. The Post’s editors note that “[t]he current Medicare program includes a hodgepodge of cost-sharing requirements that neither give participants clear incentives to limit consumption or services nor shield them from catastrophic expenses.” Exactly. The result: Seniors pay extra for Medi-gap plans that provide first-dollar coverage. That guarantees excessive utilization and drives up tens of billions of dollars in additional costs for both seniors and taxpayers alike. With uniform cost sharing and Medi-gap reform, CBO projects a 10-year savings of $92.5 billion.
- Add a 10 percent co-payment for every 60-day episode of home health care. The 10-year savings, the Post notes, would amount to $40 billion. Despite being one of the fastest-growing cost drivers in the Medicare program, home health services currently have no cost sharing at all. Compared to Obamacare’s payment reductions (projected by the Congressional Research Service to result in “zero” growth in Medicare home health payments over time), the 10 percent co-payment is a better alternative.
More reforms, more savings. The President and Congress could adopt two other bipartisan recommendations. First, they could reduce taxpayer subsidies to wealthy Medicare recipients. This proposal enjoys a growing consensus. President Obama, for example, endorsed the idea during the 2011 debate on the debt ceiling. The Heritage proposal goes a step further and would phase out taxpayer subsidies for the wealthiest retirees entirely.
Second, Congress and the President could gradually raise the normal age of eligibility for Medicare enrollment, in tandem with Social Security, and index it to longevity. Most bipartisan proposals would raise the normal age of Medicare eligibility to 67. However, raising it to 68, at the rate of two months per year over 10 years, would yield a savings of $243.6 billion over the period 2012–2021, according to The Heritage Foundation’s Center for Data Analysis.
“We’re loath to let Washington off the hook for a more permanent, fundamental Medicare fix,” the Post’s editors write. “But given the uncertainties, political and economic, of that endeavor, pursuing specific incremental reforms is a plausible, second-best solution. It won’t be painless, but neither is inaction.” Exactly right.