A Closer Look at the Republican Plan to “Reform” Medicare.

The Ryan budget plan, which was recently passed by Republicans in the US House of Representatives, purports to “reform” Medicare by offering a defined benefit plan.  Congressman Ryan calls it a “premium” plan that allows Medicare beneficiaries to choose health insurance “the same way members of Congress do.” Neither of these claims is true. Far from being a premium plan, it’s actually a voucher system that will put seniors at the mercy of the insurance industry. And it’s not at all close to the health plan offered to Congress.

When you examine it closely, the Ryan plan would replace the existing Medicare plan (rated favorably by 96 percent of its beneficiaries) with vouchers that would be used to purchase traditional health insurance from for-profit companies. To allow for inflation, the system would be tied to the Consumer Price Index (CPI). If approved by the Senate and signed by the President, the plan would go into effect in 2012 and increase the age of eligibility from age 65 to 67.

To put it mildly, this plan would pose a number of problems for future retirees.

First, the cost of health care rises at a rate far greater than overall inflation. In 2007, for example, health care costs grew at 6.1 percent, the lowest rate in a decade. But that was still far greater than the 2.8 percent climb of the CPI. Since 2000, the increase in CPI has ranged from -0.34 to 3.85 percent. At the same time, health care costs rose by 6 to 8 percent! And this year, the cost of employer-paid health insurance premiums is anticipated to grow 8.8 percent. Yet, according to a report by the non-partisan Congressional Budget Office, the Ryan plan does nothing to address the real issue of rising health care costs.

Second, under the Ryan plan, much more of the money would go to pay administrative costs than under our current Medicare program. Under Medicare, 98 cents of every dollar pays for health care delivery. But under private insurance, which the Ryan is based on, 36-85 cents of every dollar pays for care. So much of the taxpayer money intended to pay for seniors’ health care actually would be used to pay shareholder dividends and bloated CEO salaries.

Third, seniors are the least desirable consumers of health insurance because they’re the most prone to illness and they have by far the most pre-existing conditions. As a result, insurance companies will charge far more for even minimal coverage. Without highly inflated premiums (maybe this is why Ryan calls it a “premium” plan) it’s unlikely that insurance companies will offer coverage to seniors at all.

The inescapable conclusion is that, under the Ryan plan, seniors living on fixed incomes will have difficulty paying for health insurance, making each illness potentially catastrophic. Or, put more succinctly by the senior editor of Fortune magazine, the Republican-passed plan proposed by Congressman Ryan is “Medicare hocus pocus.”

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