Blog: House Republican Budget for Fiscal Year 2015 Would Voucherize Medicare and Shift Costs to Seniors

Statement

Democrats are committed to protecting and strengthening Medicare for seniors today and in the future--but by relying premium support payments that would cover less and less care over time, the House Republican Budget would turn Medicare into a voucher program, threaten the fundamental Medicare guarantee and shift costs to beneficiaries.

As AARP noted, the House Budget "fails to address the high costs of health care and instead shifts costs onto seniors and future retirees…Removing the Medicare guarantee of affordable health coverage for older Americans by implementing a premium support system and asking seniors and future retirees to pay more is not the right direction."

Like in past years, the House Republican Budget would essentially turn Medicare into a voucher program. The proposed structure would undermine traditional fee-for-service (FFS) Medicare and eventually render the program unsustainable. The Congressional Budget Office (CBO) estimates that under the House Republican Budget approach, FFS premiums will be 50 percent higher than current projections for the traditional Medicare Part B premium. This is because, as the voucher fails to keep up with the pace of inflation, a higher share of costs would shift to beneficiaries over time.

Under current law, Medicare premium rates are consistent across the country, but the House Republican Budget would expose beneficiaries to wide variation in out-of-pocket costs. For traditional FFS Medicare, seniors in a high-cost region in Alaska could pay more than twice what seniors in a low-cost region in Minnesota pay -- an estimated $3,300 versus $1,500 for the same plan. Without the affordable Medicare FFS option that the majority of seniors currently choose to enroll in, many beneficiaries would be left with substandard private plans. Insurers offering these plans would be incentivized to compete on price and would do so by limiting benefits and access in order to maintain profit margins.

The House Republican Budget would allow people who turned 55 before this year to remain in traditional Medicare. This is a change from last year's budget, which exempted individuals who were 54 and older. However, regardless of the age when the exemption begins, it would fail to shield current and future beneficiaries from feeling the effects of the transformation of the program. Unless every new beneficiary chose to remain in traditional FFS Medicare, the Medicare pool would be older, and therefore costlier, than it otherwise would have been. This will push up costs, and therefore beneficiary premiums.

The Medicare voucher system in this year's House Republican Budget values premium support payments at the average bid from traditional Medicare and private insurance plans in an area, rather than valuing subsidies at the second-lowest bid among private plans in a given area as the House Republican Budget did last year. Because the plan threatens the fundamental Medicare guarantee and diminishes the risk pool, beneficiary costs for seniors in traditional Medicare would go up, eventually eliminating Medicare FFS as a viable option. As the risk pool diminishes, the program becomes unsustainable and creates a pathway to privatization.

In addition to increased premiums, the House Republican Budget would increase seniors' prescription drug costs by repealing portions of the Affordable Care Act, including the provisions that closed the Part D Medicare coverage gap, or "donut hole." This means that seniors with high drug costs would pay an average of nearly $12,000 more over the period 2015-2022. The House Republican Budget does, however, retain the $716 billion in Medicare savings included in the Affordable Care Act, which Republicans have criticized in the past.

The House Republican Budget would also raise the eligibility age for Medicare. Beginning in 2024, the age at which an individual is eligible would increase by two months per year until 2035, moving from 65 to 67 over that period. Because the budget would repeal the Affordable Care Act, seniors between 65 and 66 would also lose access to coverage through the exchanges. Seniors who don't have employer-based coverage would therefore have the option of paying for expensive coverage in the individual insurance market or going without health insurance.

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