A new report by economists at the liberal Center for Economic and Policy Research looks at House Republicans’ plan for privatizing Medicare from a new angle, and finds that it could increase health care costs for beneficiaries by a staggering $34 trillion over 75 years.
You won’t find these expenditures on the government ledger. They represent the amount of money Medicare beneficiaries would have to pay out of pocket if they wanted to buy insurance policies that provide Medicare-equivalent benefits.
The reasoning is fairly straightforward, according to CEPR’s Dean Baker and David Rosnick.
The money the government currently spends every year on Medicare doesn’t cover every penny of health care its beneficiaries consume. The government agrees to pay a fixed percent, and the rest falls to the beneficiaries who share in the cost of the services they and their doctors order. The sum of those two numbers — both of which are expected to rise steeply over time — is the total cost incurred by Medicare. Under the House Republican plan, the government holds fixed the amount of money it’s willing to pay per patient per year, and leaves the residual costs for seniors to sort out with private insurers. Because private insurers are smaller, profit-driven, and less efficient than Medicare, those out-of-pocket costs will be significantly higher than they are now. And they’d grow much, much faster. Over the course of the program’s 75 year planning period, the difference would amount to $34 trillion.
Quoth Baker and Rosnick:
CBO projects that private-sector inefficiency will grow over time. By 2030, the government would spend $7,200 on a 65-year-old in traditional Medicare. Since the cost of Ryan’s plan remains fixed at $6,600, it would save the government $600…. But the total cost of insuring the beneficiary through the private sector would be $20,600, compared to $12,400 under traditional Medicare. For every dollar that the government would save on this beneficiary, it would generate more than $13 of waste.
The authors describe the $8,200 difference as a “gift to the private sector,” that would function like a tax.
Conservatives would argue that seniors will shop around for plans that provide fewer benefits than traditional Medicare, but that cover the services they expect they’ll need. If that doesn’t hold down the growth in health care costs, though, that would mean shedding more, and more benefits or paying more and more out of pocket.
And that’s all assuming seniors will be able to find private insurers willing to sell them coverage.
Read the report here:
Brian Beutler is TPM's senior congressional reporter. Since 2009, he's led coverage of health care reform, Wall Street reform, taxes, the GOP budget, the government shutdown fight, and the debt limit fight. He can be reached at firstname.lastname@example.org.