This article originally appeared in Kaiser Health News. Rep. Paul Ryan introduced yesterday the GOP budget proposal that includes an effort to shift Medicare costs to subscribers and change Medicaid into a block grant. Twenty-eight percent of black Americans and 27 percent of Latinos get health insurance through Medicaid, nearly triple the rate among whites. In some states, far greater shares of both blacks and Latinos depend upon the program for health care. This article explains how the Medicare reforms in particular would work. We’ll dig into Medicaid soon.

Amid the buzz about a possible government shutdown over this year’s budget looms a more difficult question: What to do about entitlement programs, especially Medicare?

Politicians of all stripes have been decrying the nation’s soaring debt and say that taming entitlements is crucial to curbing spending. So far, President Barack Obama hasn’t proposed big changes. But some Republican leaders have called for a major overhaul of Medicare, a $520 billion program that covers nearly 47 million older and disabled Americans. Given the political peril involved in tampering with Medicare, the question is: How serious are the Republicans?

The answer: Plenty serious.

This week, House Budget Committee Chairman Paul Ryan of Wisconsin unveils his proposed budget for 2012. In an appearance on Fox News Sunday, Ryan refused to give final details of his proposal but said he would dramatically slow the growth rate of Medicare by adopting a fundamental change called “premium support.” Ryan also said he would propose turning Medicaid, the state-federal program for the poor, into a block grant program. Altogether, he said, his budget save more than $4 trillion over 10 years.

House Majority Leader Eric Cantor, R-Va., said last week: “Most of us, 54 and younger, are not going to be able to enjoy the same type of programs that are in existence now.”

With a presidential election coming up next year, some observers say it’s unlikely anything big will happen involving entitlements before 2013, at the earliest, but that won’t stop the debate. Here is a guide to some of the ideas being discussed, especially in Republican circles, on changing Medicare:

RAISING THE ELIGIBILITY AGE: The age for full Social Security benefits is now 66 and will reach 67 in 2027. Some analysts—including Ryan and Alice Rivlin, who was budget director for President Bill Clinton—argue that it makes sense to slowly raise the Medicare eligibility age from 65 to 67. People are living longer and retiring later so they don’t need Medicare as early as their parents did, they say.

How Much Would It Save? According to an analysis by the Congressional Budget Office, gradually increasing the Medicare eligibility age would save the federal government $125 billion over the next decade.

The Gain: People who are still working at 65 and get health insurance at work could stay on their employers’ plans for another two years, thus slowing Medicare spending. Assuming the health law survives, people without job-related insurance would have more alternatives than they do now: They could buy coverage—even if they are sick—on the new exchanges being set up under the health law and may qualify for subsidies to help purchase insurance. Or, if they are lower income, they might be eligible for Medicaid, the state-federal program for the poor that will be expanded sharply in 2014. A gradual phase-in of the higher age requirement means that current beneficiaries and those near retirement would not be affected. “The impact of that takes a long time to hit,” said Joe Antos of the conservative American Enterprise Institute.

The Pain: Health care costs that are now borne by Medicare for people 65 and 66 would be shifted to individuals, employers and states, according to a new report by the Kaiser Family Foundation. (KHN is an editorially independent program of the foundation.)

If the health care law were repealed, some people without employer insurance might not be able to afford coverage or get insurance at any price, especially if they had pre-existing medical conditions. Those people might delay needed treatments, which could eventually increase Medicare’s cost to treat them.

“MORE SKIN IN THE GAME”: Republicans, and some Democrats, have long thought that spending could be slowed if patients, including Medicare beneficiaries, had “more skin in the game”—in other words, put up more of their own money for health services. Some have suggested raising seniors’ share of the Medicare Part B premium (which covers doctor visits and other outpatient services) from 25 percent to 35 percent and imposing co-payments for home health services or the first 20 days of a skilled nursing facility stay.

How Much Would It Save? The home health co-payment would save $40 billion over the next decade for the federal government; the skilled nursing co-pay would save $21.3 billion, according to the CBO. Increasing the beneficiary’s share of Part B would save $241 billion over 10 years.

The Gain: Raising beneficiaries’ share of Part B premiums would bring the program closer to its original 50-50 split between the federal government and beneficiaries, proponents say. And greater cost-sharing for services would discourage overuse of care, they add.

The Pain: Opponents say beneficiaries already spend a big chunk of their incomes on medical care. In 2006, one in four spent 30 percent or more of their incomes on health expenses; one in 10 spent more than half, according to the Kaiser Family Foundation.

Requiring seniors to pay more could discourage people from getting needed medical care. “When you think about this population, which is sicker and uses health care more, what does it mean that they have to pay more and are living on a fixed income?” said Vicki Gottlich, senior policy attorney with the nonprofit Center for Medicare Advocacy.

MEDICARE VOUCHERS OR PREMIUM SUPPORT: Rep. Ryan, in a blueprint for entitlement overhaul he wrote in 2008 and continues to update, calls for a sharp, fundamental change: Transforming Medicare into a voucher program for future beneficiaries, starting with people who are now 54 and younger. Instead of being entitled to a specific package of benefits, beneficiaries would be given a voucher to spend on private insurance.

On Fox, however, he said he would instead propose “premium support” plan to overhaul the seniors’ program. Ryan says that under that proposal, beneficiaries would choose Medicare coverage they like and the government would pay a specific percentage toward the premium. The beneficiary would be responsible for the rest.

In his comments, Ryan drew a sharp distinction between vouchers and premium support. There are technical differences. For example, vouchers tend to be a specific dollar amount with growth pegged to an inflation gauge or the growth in the economy plus one percentage point. Under premium support, enrollees would likely get a certain percentage of their premiums covered by the government. But how different the two approaches are depends on how they are designed. They are both geared toward curbing government spending.

How Much Would It Save? Although CBO says Ryan’s earlier Medicare proposal would reduce federal spending, it has not estimated a specific dollar amount.

The Gains: Ryan has said that switching to vouchers would give Medicare financial stability. His goal would be same with premium support. The voucher idea has also gained the backing of Rivlin, who is now a senior fellow at the Brookings Institution.

The Pain: Critics see danger ahead. Most voucher proposals peg the growth in value of the voucher to general inflation or economic growth. But the cost of Medicare benefits is likely to be higher. That raises concerns that costs will slowly be shifted to beneficiaries. Some health analysts say the same could occur under a premium support model, depending on how it’s designed. Ryan says, under his plan, wealthy beneficiaries would pay more for Medicare than less-affluent seniors.

CHANGING MEDICARE’S DEDUCTIBLE AND MEDIGAP COVERAGE: Medicare charges beneficiaries separate deductibles for their hospital care (Part A) and for outpatient and physician services (Part B). This year, in Part A, beneficiaries pay $1,132 for each hospital stay, and enrollees also pay daily co-payments for extended hospital and skilled nursing care. For Medicare Part B, the annual deductible this year is $162. Nearly one in five beneficiaries in Medicare’s fee-for-service program have supplemental insurance known as Medigap coverage to help with those costs.

Some proposals, including one advanced by the president’s deficit panel chaired by former GOP Sen. Alan Simpson and former Clinton chief of staff Erskine Bowles, have suggested combining the Part A and B deductibles into one $550 yearly deductible. That could reduce beneficiaries’ costs for hospital care but be more expensive for seniors who mostly use Part B. In addition, some proposals suggest a 10 to 20 percent co-payment for all services until beneficiaries reach a catastrophic limit. Others argue for making that $550 deductible ineligible for Medigap coverage so that beneficiaries are responsible for covering the cost of those initial services.

How Much Would It Save? Instituting the change in deductibles, co-pays and Medigap rules would save about $93 billion over the next decade, CBO estimates.

The Gain: Medicare would save money, but not just because beneficiaries were putting up more of their own. If Medigap plans were less generous, analysts believe beneficiaries would be more careful about spending and that could help lower Medicare costs.

The Pain: Once again, this proposal would shift costs to individuals.

This article was reprinted from kaiserhealthnews.org with permission from the Henry J. Kaiser Family Foundation. Kaiser Health News, an editorially independent news service, is a program of the Kaiser Family Foundation, a nonpartisan health care policy research organization unaffiliated with Kaiser Permanente.

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