TOPICS > Politics

Obama vs. Ryan Plans: What Medicare Costs Are Saved, Shifted?

April 21, 2011 at 6:05 PM EDT
Controlling mounting Medicare costs has become a central flash point in the budget deficit battle. Judy Woodruff discusses the brewing Medicare debate with Gail Wilensky, a former Medicare oversight official in the first Bush administration, and Chris Jennings, a former senior health adviser to President Clinton.

JUDY WOODRUFF: And to the battle over curbing Medicare costs.

Controlling the cost of Medicare has become central to the escalating debate over the federal budget deficit.

REP. PAUL RYAN, R-Wis., Budget Committee chairman: This is the path to prosperity.

JUDY WOODRUFF: House Budget Committee Chairman Paul Ryan rolled out a Republican approach two weeks ago as part of his long-term budget proposal.

Under the Ryan plan, Medicare would switch to paying fixed amounts to private health insurers instead of directly to hospitals and doctors beginning in 2022. Any increases in payments would be linked to the consumer price index. Beneficiaries would bear any costs above what the program provides. But current Medicare beneficiaries would not be affected.

President Obama laid out an alternate path. It calls for Medicare to bargain with pharmaceutical companies to reduce drug costs. And a panel called the Independent Payment Advisory Board, established under the health care reform law, would cut Medicare costs if spending rises faster than the GDP. But it would not end traditional fee-for-service Medicare.

Last Sunday, Congressman Ryan defended his proposal and attacked the president’s.

REP. PAUL RYAN: I would simply say the president had one idea he gave us on Wednesday, which is have this board of 15 people that he appoints ration and price-control Medicare for current seniors. So, we just don’t think government rationing on Medicare is the answer.

JUDY WOODRUFF: Mr. Obama, in turn, was critical of the GOP plan at a town hall meeting yesterday with Facebook employees in Palo Alto, Calif.

PRESIDENT BARACK OBAMA: The Republican budget that was put forward, I would say, is fairly radical. I wouldn’t call it particularly courageous.

I do think Mr. Ryan is sincere. But I think that what he and the other Republicans in the House of Representatives also want to do is change our social compact in a pretty fundamental way.

JUDY WOODRUFF: Over the years, both parties have found it hard to make changes to Medicare, including cutting payments to doctors.

And there are signs of broad opposition this time as well. A new Washington Post-ABC News poll found 78 percent of Americans oppose cutting spending on Medicare to reduce the national debt. In the meantime, Medicare’s trustees have warned the day of reckoning is coming.

If nothing is changed, the trust fund will run out of money by 2029.

The House passed the Ryan plan last week. It is not expected to pass the Senate. But cutting Medicare costs is a key part of the debate over deficits.

And we assess the two central ideas out there with Gail Wilensky. She’s the former director of the federal agency overseeing Medicare during the first Bush administration. She’s now a senior fellow at Project HOPE, a foundation for health education. And Chris Jennings, he’s a former senior health adviser to President Clinton. And he advises Democrats today. He has his own health consulting firm here in Washington.

We thank you both for being here.

CHRIS JENNINGS, health policy consultant: My pleasure.


All right, we are talking about costs. And let’s just talk about that first, Gail Wilensky. The — the — one type of cost is the cost to the government. What would the Ryan plan, the Republican plan, mean in terms of government spending?

GAIL WILENSKY, Project HOPE: It would set the amount that government would spend, as opposed to now, where Medicare is an open-ended entitlement, and government spends whatever it costs in the program.

But it also is important for people to understand that while we talk about this in the context of the debt and the deficit, the problems with Medicare have gone on much longer than that. We were going to have problems with Medicare because Medicare spending was growing way more than was sustainable, and on top of that, we have the baby boomers who are starting to retire, and they will double population on Medicare.

JUDY WOODRUFF: But, on balance, it would save the taxpayers money?

GAIL WILENSKY: It would specify what the amount would be.

It’s been compared to the notion of having defined benefits versus defined contributions in terms of pensions. An amount would be set, could decide whether the amount that Congressman Ryan said, which was at the growth of the economy, or some other amount is a right amount, but that would be the amount that would count for the spending by government.

People would have a variety of plans. And that limits the government’s obligation.

JUDY WOODRUFF: And thus would lead to lower government spending, Chris Jennings, is that right, on Medicare overall?

CHRIS JENNINGS: Sure. It would cap what Medicare pays for health care for seniors.

And — but the issue really is, capping doesn’t contain costs. It just shifts costs. And — and the real challenge of our health care delivery system is not siloed in the Medicare program. We have health care costs in the private sector, in Medicaid, in the Medicare program throughout the system.

And one of the problems when we do this sort of silo-type health care is that we just shift it to businesses, to consumers, and in this case…

JUDY WOODRUFF: And what would happen in this case, the Ryan plan vs. the Obama plan?

CHRIS JENNINGS: In the case — the scary thing about the Ryan policy is it caps the federal contributions to the Medicare beneficiaries, and in so doing, beneficiaries would pay twice the amount of money out of pocket when first implemented in 2022, so from $6,000 to over $12,000.

JUDY WOODRUFF: So, are you saying that under — and then, under the Obama plan, the government wouldn’t save as much money? I’m just trying to get to a bottom line.

CHRIS JENNINGS: Yes, I think that you have a very substantial difference, but under both programs, you would slow the rate of federal expenditures.

But, in the Obama plan — there really is a right way and a wrong way to do it. And if you just cut it to pay for a very large tax cut, people have some very real concerns about that.

JUDY WOODRUFF: Let’s talk about costs to patients and the system overall. That’s the other story of the costs.


JUDY WOODRUFF: How would those change, Gail Wilensky?

GAIL WILENSKY: Well, what we need to do is understand what’s happened thus far with Medicare. All the pressure has been on how the providers of services are paid.

And what the Obama administration and other administrations have done previously is reduce the amount that is given for treatments by hospitals or for treatments by physicians, or kept them constant, even though costs are going up. The idea here is to set aside an amount, like we do with Part D Medicare. And like in Part D Medicare…

JUDY WOODRUFF: Which is prescription drugs.

GAIL WILENSKY: Which is the prescription drugs. The benefit was passed a few years ago.

What we have seen is that, by having that amount set in advance, having a lot of competition between these private plans, spending has actually been running 45 percent less than Congressional Budget Office had predicted.

JUDY WOODRUFF: And so you’re saying people are saving — people are spending less for Medicare under that plan. And you’re suggesting that the same thing would happen under — under the Ryan plan.

GAIL WILENSKY: The total spending has been much lower. And the amount that people are spending — and we have a federal employees health plan that this is modeled after, this Ryan plan. So, it’s not like it’s completely unknown.

JUDY WOODRUFF: Is that — is that how you would describe the Ryan plan as well, that people would spend less money for their care, patients?

CHRIS JENNINGS: Well, that would be the hope. Of course, that — the Part D analogy is probably a little bit of a stretch , because actually, Gail is correct that the costs are lower than they had originally been projected, but that was systemwide, because we saw a lot of generics coming in the system from both the private and the public sectors.

So, to make the analogy that one is the same as the other just, I don’t think, holds up. I think the big, real issue here…

JUDY WOODRUFF: I want to try to get to the differences between the two proposals here in terms of costs.

CHRIS JENNINGS: Sure. And I think — and I think where I disagree with Gail somewhat is, the Affordable Care Act legislation that passed as part of health care reform didn’t just include constraints in provider payments.

It — it really laid the foundation for and planted the seeds for real delivery reforms, whether that be through organizations like accountable care organizations or whether that be through investments in comparative effectiveness research that Gail has endorsed, really to find ways for people and plans, purchasers, businesses to make informed choices about constraining overall costs and not just Medicare specifically.

JUDY WOODRUFF: And you’re saying that’s as important as looking at the cost overall.

CHRIS JENNINGS: I think, fundamentally, it’s more important.

JUDY WOODRUFF: What about the — more important?

CHRIS JENNINGS: Yes, because you’re not just talking about shifting costs. You’re talking about constraining costs program — I mean, and health care sector-wide.

JUDY WOODRUFF: Let me just quickly move on to two other things. One is how do the plans differ in terms of the number of seniors covered? Would every senior, presumably, Gail Wilensky, be able to get coverage under both the Ryan plan and the Obama plan?

GAIL WILENSKY: Absolutely. They’re going to get an amount of money. They’re going to have private plans be available to them. The private plans will have to meet certain criteria.

The notion that people will have money, which, by the way, will increase as people get older and if they are sicker, and those who are low-income would receive additional amounts — people who are 55 and older now would just continue on the original Medicare plan.

JUDY WOODRUFF: So, there’s no question that the private insurer would be available to everyone, Chris Jennings?

CHRIS JENNINGS: Yes, it would be available. The question, would it be affordable, and more importantly for seniors, what would be their out-of-pocket costs?

Remember, it’s not just what the insurer pays. It’s what you pay out of pocket through premiums and cost-sharing. And the big concern, again, is if you double the exposure of out-of-pocket costs for seniors, when — at a time when they have very limited incomes, you will just be finding that many of them may not even get the care that they need because they can’t afford it.

JUDY WOODRUFF: So — so — and — and you’re saying that’s what would happen under the Ryan plan?



CHRIS JENNINGS: I think — I think the problem with that is the shifting, rather than the constraining of costs.

JUDY WOODRUFF: Finally, just this idea of quality, which — you know, we only — we have less than a minute now to address this.

But, Gail Wilensky, do you see a change in the quality of health care for seniors under these two plans?

GAIL WILENSKY: I think people will be able to get information about different kinds of plans, be able to pick the one that suits them. The government will continue, because we have traditional Medicare continuing and because there are rules already in place, to make sure that quality continues to be an important measure.

JUDY WOODRUFF: So — so, you’re saying it wouldn’t — it wouldn’t…


JUDY WOODRUFF: … deteriorate.


JUDY WOODRUFF: Chris Jennings?

CHRIS JENNINGS: … you know, again, what people don’t really understand today is, the Medicare program is growing at a much lower rate than the private sector. If you squeeze too much, you might — you might threaten quality over a period of time.

JUDY WOODRUFF: In terms of costs?

CHRIS JENNINGS: In terms of costs.


CHRIS JENNINGS: And, more importantly, if you constrain too much too quickly, those costs may be shifted to the private sector in terms of employers and employees for the under-65 population.

So, again, the big key here is constraining overall costs program-wide, sector-wide. And I think the way that the — the Ryan prescription is the wrong one.


Well, it is a big subject, and we’re just taking it off bite, piece — bite by bite, I should say.

Chris Jennings, Gail Wilensky, thank you very much.