President Joe Biden wants to cut Medicare Advantage
Ryan Ellis
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Joe Biden might go down in history as our most irresponsible president when it comes to the long-term fiscal crisis faced by Medicare, Social Security, and other entitlements.
Whereas President Donald Trump simply passed on the issue entirely, Biden has chosen to lie about it actively, accusing Republicans of wanting to cut the programs on the slimmest of evidence. Meanwhile, Biden himself is proposing a Medicare cut inside the Medicare Advantage program, the form of Medicare that nearly half of seniors have enrolled in.
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That’s not to say we don’t need to lower the cost growth of Medicare and the other entitlements — we obviously do if we’re going to avoid the programs going bankrupt in a few years. So say both CBO and the Medicare actuaries. But it takes some gall for Biden to make a State of the Union speech falsely accusing Republicans of wanting to cut (eliminate, actually) Medicare when the only one who has proposed to do so is Biden himself.
Medicare Advantage is not the place where we should be looking to save pennies on the dollar within Medicare. Rather, it should be the model toward which the rest of Medicare should be moving, with some additional reforms that will prevent program collapse or massive tax increases.
Medicare Advantage was created back in 2003 as an alternative way for seniors to get their Medicare benefits. Instead of enrolling in traditional Medicare with Part A (hospital insurance) and Part B (doctor’s office insurance), with the need to buy a “Medigap” policy to cover what Medicare doesn’t, seniors could get their benefits through Medicare Advantage instead. This option allowed a health insurer to offer a comprehensive package of benefits similar to what seniors can obtain in Part A, Part B, and Medigap combined. In addition, they could offer a prescription drug plan (Part D), something traditional Medicare enrollees could only get a la carte.
Health insurers were free to design plans in all sorts of innovative ways and to compete with each other for business from seniors. A retiree might prefer a plan with a really high monthly premium that covers everything. His neighbor might be more comfortable with a plan that has a lower premium and higher deductible, which exposes her to higher out-of-pocket costs throughout the year. Yet another senior might want to make sure she gets first-dollar hospital coverage but is OK with higher costs to go to the doctor. The point is enrollees can pick the plan annually that makes the most sense for them.
Younger seniors have taken to Medicare Advantage since it looks much more like the private sector health insurance they have just exited from in the working world. And what’s not to like? Besides the premiums that come out of a Social Security benefit, Medicare Advantage plan enrollees pay an average additional premium of $18 per month. There are out-of-pocket limits and coverage for things traditional Medicare doesn’t touch. And if a plan isn’t working, seniors can pick a new one every year.
Medicare Advantage should be the model upon which Medicare reform is built. For one thing, it’s on the verge of being Medicare for a majority of enrollees, so it’s a natural place to start.
The biggest reform we should make to Medicare Advantage is to increase government support for poorer and sicker seniors to buy Medicare Advantage packages. This could be paid for by lessening the government support that wealthier and healthier seniors get today. Shifting the subsidy in this direction (a concept known as “premium support”) would essentially give all seniors a defined contribution of program dollars to buy a plan, with some additional help for those who need it. Replacing the blank check of “whatever Medicare costs, taxpayers will pay for” with a premium-support defined contribution is a necessary step to getting Medicare costs under control.
Premium support alone won’t do it. We also need to require wealthier seniors (those making more than $100,000 per year in retirement or who have a lot of assets) to pay more for their own Medicare benefits. Today, most seniors pay for only 25% of the Medicare Part B premium out of their Social Security checks, and they pay nothing for Part A (which is funded by the Medicare payroll tax). This money is plowed into a Medicare Advantage plan and supplemented by a small premium the insurance company charges.
What we need in entitlement reforms is an honest conversation — one that President Joe Biden didn’t give us at the State of the Union. And when it comes to Medicare, we should build on what is working — Medicare Advantage programs, a defined contribution to buy them, and a means-test to ensure that everyone has fair access.
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Ryan Ellis (@RyanLEllis) is the president of the Center for a Free Economy.