by Ross White
If you are in your mid to late 20s you probably don’t spend your days worrying about how you are going to pay for health care once you retire. However, a recent report from the Center for American Progress suggests that if Mitt Romney and Paul Ryan win the election and follow their campaign promises, you might want to. David Cutler, one of Obama’s most trusted health policy advisors, along Toper Spiro and Maura Calsyn of the Center for American Progress argue that the Republican ticket’s plan to repeal the Affordable Care Act and turn the Medicare program into a “premium support” voucher system for people eligible beginning in 2023 would dramatically increase the costs of retirement for each successive generation. They argue that because the Romney-Ryan plan focuses largely on reducing the amount that the federal government pays, rather than addressing systemic approaches to reduce overall costs, seniors will bear the brunt of cost increases. How much are we talking? If you’re 29 today, they estimate $331,200 over the course of your retirement (yes, you read that right). Although the authors are decidedly left-leaning, they rely upon data generated by the nonpartisan Congressional Budget Office (CBO) and other government agencies for their analysis.
According to the authors, perhaps the biggest shortcoming of the Republican plan is that the vouchers offered to individuals will not keep pace with rising health care costs. The plan would set the initial voucher amount at $7,500 in 2023, with a growth pegged to the growth of gross domestic product plus 0.5 percentage points. This growth rate is much slower than the projected growth in health care costs. As a result, an increasing amount of health care costs will get shifted to seniors. What does that all mean? If you’re 29 today, and the authors’ assumptions hold true, when you retire in 2050 you can expect to pay $331,200 more in health care costs over your retirement than retirees today.
The increase in costs for seniors, present and future, will result not only from cost-shifting onto the backs of individuals, but also because the Romney-Ryan plan promotes private insurance as an alternative to traditional Medicare. Private health plans have higher profits and administrative costs than Medicare and, as more individuals shift to purchasing private insurance using the voucher, private plans will gain purchasing power over traditional Medicare as well. Although Romney and Ryan continue to argue that privatizing Medicare will increase competition among health plans and allow market forces to lower costs, the CBO concluded that much of the federal savings from their plan would come from increases in premiums paid by beneficiaries, not from increases in the efficiency of health care delivery. While many other health care reform approaches, including the Affordable Care Act, rely on instituting payment and delivery reforms that coordinate care, improve the use of quality reporting and analysis, and create incentives to reduce unnecessary care, the Republican plan would hold down federal expenditures largely through reducing the share that the government contributes to individual’s care.
All that said, even if Romney and Ryan are elected in November and able to implement their health care plan, it’s hard to imagine such an approach remaining in place for long. With such a plan, Americans will likely feel greater financial burdens from rising health care costs—particularly in retirement. In turn, it’s not hard to imagine voters calling upon political leaders to increase the share of health care and insurance costs that the government pays. On the other hand, the projections made by the report’s authors may not be realized, since they rely upon CBO baselines and projections that can vary from year to year. And if the Romney/Ryan plan succeeds, hopefully it would result in some tax cuts that take a bite out of the $331,200 figure. Regardless of what happens in the coming decades, reports such as this highlight the importance of taking a long view on how our health policies will affect generations to come.
Health policy does not happen in a vacuum. When we consider changing major entitlement programs such as Medicare and Social Security we must consider questions of intergenerational equity. Current beneficiaries are always assured that they will not see their benefits decrease, but what about those of us in our 20s? Will the program still be there when we turn 65? I’ve seen Medicare taxes taken out of my paycheck since my first job at age 15; will I ever see that money? Can I rely on the government to support me in retirement, or should I be setting aside an extra $100 each month?
These are not easy questions to answer, but it is incumbent upon the millennial generation to force political candidates and leaders to address these concerns and continue meaningful dialogue about the future of Medicare. A failure to do so may compromise not only the sustainability of our health care system, but also the economic success and stability of future generations of Americans.
[UPDATE, 9/1/12: Austin Frakt, at the Incidental Economist, reports that the Romney campaign has left Ryan’s GDP + 0.5% growth cap off its platform. Without a hard cap on Medicare spending growth, the out-of-pocket cost projections in the paper cited here are, strictly speaking, moot. That’s because Medicare spending would follow the rate of healthcare cost growth, rather than an arbitrary GDP peg. Of course, as Austin points out, this leaves us wondering how Romney plans to curtail healthcare cost growth. And the issues of intergenerational equity raised in this blog post remain relevant as ever. — @krchhabra]
Ross is Public Policy Associate at The Hastings Center and a graduate student in philosophy and social policy at George Washington University. Follow him on Twitter @rossswhite.