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Home Publications Blogs Beat the Press Representative Ryan Proposes Medicare Plan Under Which Seniors Would Pay Most of Their Income for Health Care

Representative Ryan Proposes Medicare Plan Under Which Seniors Would Pay Most of Their Income for Health Care

Wednesday, 06 April 2011 04:42

That is what headlines would look like if the United States had an independent press. After all, this is one of the main takeaways of the Congressional Budget Office's (CBO) analysis of the plan proposed by Representative Paul Ryan, the Republican chairman of the House Budget Committee. Representative Ryan would replace the current Medicare program with a voucher for people who turn age 65 in 2022 and later. This voucher would be worth $8,000 for someone turning age 65 in that year. It would rise in step with the consumer price index and also as people age. (Health care expenses are higher for people age 75 than age 65.)

According to the CBO analysis the benefit would cover 32 percent of the cost of a health insurance package equivalent to the current Medicare benefit (Figure 1). This means that the beneficiary would pay 68 percent of the cost of this package. Using the CBO assumption of 2.5 percent annual inflation, the voucher would have grown to $9,750 by 2030. This means that a Medicare type plan for someone age 65 would be $30,460 under Representative Ryan's plan, leaving seniors with a bill of $20,700. (This does not count various out of pocket medical expenditures not covered by Medicare.)

According to the Social Security trustees, the benefit for a medium wage earner who first starts collecting benefits at age 65 in 2030 would be $32,200. (This adjusts the benefit projected by the Social Security trustees [$19,652 in 2010 dollars] for the 2.5 percent annual inflation rate assumed by CBO.) For close to 70 percent of seniors, Social Security is more than half of their retirement income. Most seniors will get a benefit that is less than the medium earners benefit described here since their average earnings are less than that of a medium earner and they start collecting Social Security benefits before age 65.

Furthermore, the portion of income going to health care costs will increase through time according to the CBO analysis. This is due both to aging of individuals and to increasing health care costs through time. As noted insurance for older beneficiaries will cost more than insurance for younger beneficiaries, but Representative Ryan's voucher would still only pay the same amount for their care. This means that if the average 80-year-old cost twice as much to insure as the average 65-year-old, then the premium that would come out of a seniors' pocket would be twice as large. This implies that if the program had been in effect for 15 years in 2030 then the average senior would be paying $41,400 for a Medicare equivalent insurance package in 2030, 25 percent more than the medium earner's benefit in that year.

The other reason that Representative Ryan's plan will lead to rising health care costs for seniors through time is that the voucher payment does not keep pace with health care cost inflation. As costs continue to rise relative to the voucher, seniors will be required to pay a larger portion of their health care costs themselves. It is worth noting that 2030 is only 8 years after the voucher program kicks in.

Comments (38)Add Comment
Better Dead Than Red: The Old Must Be Bold, Low-rated comment [Show]
written by Jerry Jones, April 06, 2011 10:02
So I'm reading in the March 24, 2011 New York Times that General Electric essentially paid no 2010 U.S. tax on $5.1 in profits from U.S. operations. Next, I read there's not enough money for Medicare. Could there be a connection?
$5.1 *Billion*
written by Jerry Jones, April 06, 2011 10:08
That should read $5.1 *BILLION* in profits. Also, the New York Times article informs us that it's not just General Electric. "Although the top corporate tax rate in the United States is 35 percent, one of the highest in the world, companies have been increasingly using a maze of shelters, tax credits and subsidies to pay far less."
written by Mark, April 06, 2011 10:38
So what? This is Amerika. One must pull themselves up by their boot straps. If you can't afford premiums, eat cat food, live under a bridge, prostitute yourself. That's called freedom and democracy.US tax dollars must subsidize the wealthiest Amerikans and MNC's or we won't be able to create jobs and "win the future." Tax dollars also must be spent to kill terrorists and spread our freedom and democracy to the four corners of the planet.

The choice is yours. Do you want granny to die a peaceful death under a bridge among empty cans of "Friskies" or do you want her brutally killed by terrorists?
Being Disingenuous, Low-rated comment [Show]
Disingenuous needs to work on his/her reading comprehension.
written by AnnS, April 06, 2011 12:22
Disingenuous needs to work on his/her reading comprehension. What is said is that right now, Ryans' "voucher" would cover only 32% of the cost of coverage as comprehensive as Medicare. Medicare, in fact, covers well over 80% of all medical expenses - and with a Medigap, the additional out-of-pockets (deductibles, copays etc) go down to $1255 a year to zero. Reading and UNDERSTANDING is a critical skill - work on it.
Disingenuous is the "absurd" one
written by cervantes, April 06, 2011 12:28
Medicare is more efficient than private health plans -- by a lot. Medicare pays out more than 95% in benefits, compared to typically less than 85% for private insurance -- which has profits, marketing, and medical underwriting expenses. And it will indeed get even more efficient based on provisions of the PPACA. That is not an "absurd notion," it is the truth. But truth is an alien concept to conservatives.
Vouchers for $8K?
written by Scout, April 06, 2011 12:33
Seriously? This guy Ryan thinks $8K a year is even going to come close to paying for senior citizen health insurance? I'm 43 and my employer pays at least $12K a year just for MY coverage. I pitch in another $100 a week to pay for my 52 YO spouse. And another couple hundred a month for my 6 YO daughter.

This is laughable and everyone should say so. If we had a President with any spine at all he WOULD say so. The Dems need to stop taking these people seriously. They are NOT serious and this needs to be pointed out repeatedly.
Still being disingenuous, Low-rated comment [Show]
BV and Medicare's Admin Costs
written by Scout, April 06, 2011 1:33
I'd like to see you back up your assertion that

"Medicare spends 5-10% more in administrative costs than private plans"

I find this very hard to believe, especially as a long-time "consumer" of private medical insurance, which sends out blizzards of paperwork out for each and every claim and hires out other companies ('to save me money') to do research into claims. Furthermore, they have legions of workers doing nothing more than denying claims - all those people have to be paid out of the premiums paid by clients, and none of that money actually goes towards medical care.

Finally, even if your assertion that Medicare is less efficient were true, there is the fact that private insurance has a madate for profits alone and pays their top executives multi-million dollar bonuses. Where are THOSE costs in your analysis?

written by jhand, April 06, 2011 1:33
To BV: If you read past the passage you quoted above, you will see that the report makes a distinction between the differences in premiums paid and total medical expenses. When you get to the latter issue--medical expenses covered by "the proposal" (i.e. Ryan's plan) and the two other scenarios, the out-of pocket contributions to medical expenses become alarmingly higher than the total out-of-pocket expenses incurred under the current plan. Those big differences apply to both 2020 and 2030, according to the CBO report. In summary, the report differentiates between premiums and expenses, and we readers need to be aware of that difference.
Orwellian Disingenuity
written by curlydan, April 06, 2011 1:34
Seriously, BV, are you paid by the Heritage Foundation to make these comments? Everyone needs to look at the graph on Page 22 of the CBO analysis. In 2011, Medicare is 89% of the cost that private insurance would be for a 65 year old. In 2022, Medicare is 66% of the cost of the Ryan plan. In 2030, Medicare is 60% of the cost of the Ryan plan. Let's say Ryan's insurance cost for a 65-year old is $20K in 2030. This graph says that 68% is borne by the senior (or $13.4K) and 32% (or $6.6K) is borne by the govt. For Medicare, the cost would be 60% of Ryan's cost (or $12K) with $5K cost (or 25%) to the senior. Would you rather pay $5K or $13.4K? Tough choice.
oops, need my calculator
written by curlydan, April 06, 2011 1:44
should be $13.6K in my comment above instead of $13.4K above and $6.4K instead of $6.6K. So the choice is $5K traditional Medicare versus $13.6K Ryan's plan? Still a tough choice :)
Vouchers for All!
written by Jim Pharo, April 06, 2011 3:25
Why not give citizens vouchers for the purchase of defense? That way, each and every buyer will only buy the B-1-B bombers and F-16s and nuclear subs they need. This will create a market in shared-ownership, and through the magic of competition will finally bring down the costs of national defense.

As a dyed-in-the-wool GOP-er, I can see nothing wrong with this.
written by Susan Lacroix, April 06, 2011 3:35
I live on Social Security as my only income because I am disabled. Medicare is vital to my survival and any cuts in Medicare only puts medical care farther from my reach. My income barely covers the necessities of living and with no cost of living increase for the past two years, it's nearly impossible to pay my out-of-pocket medical expenses as it is.

Why don't they start by cutting the defense budget, privatizing the Post Office and doing away with Homeland Security, for starters. Let the CIA & FBI handle terrorist threats instead. We don't need Homeland Security and we never did. Ending the wars would also save a ton of money that our taxes are currently paying for.

Cutting out Medicare sounds like legal euthanasia, so our government can get rid of an aging population that has paid into the system their entire working lives! What has happened to this country???
written by paine, April 06, 2011 4:12
this voucher plan is so bad
no one will believe you

i urge you to stop trying to show
precisely what this will all come to
in after voucher dollars out of pocket

it makes you sound crazy
and maybe nasty too
written by ComradeAnon, April 06, 2011 4:23
Ryan is clearly buying votes of the Seniors. If his plan is good enough for someone who's 25 or 35 or 45 or 50, it's good enough for someone who' 60 or 70 or 80. And The Heritage Institute has already removed that unemployment number of 2.8%. It simply disappeared. 2.8%! We haven't had unemployment that low for 60 years! This is what the republicans think of anyone who is not wealthy. He and his plan are bushit.
55% for Health Care + 40% for Housing + 30% for Food = -25% for Everything Else
written by Hugh Sansom, April 06, 2011 7:13
Republicans and most Democrats see neither inconsistency nor immorality in demanding that the average American be willing to surrender more than they he or she has on this Earth for a subsistence living. While members of Congress work to assure steady kickbacks for themselves and multi-billion-dollar transfers to their wealthy controllers, they work in every way to make our lives worse (short of just killing us).

Political economists tell us that the United States is better than most other nations. How?
written by SF, April 06, 2011 9:49
To Hugh S.
Get real Hugh. "Political economists tell us that the United States is better than most other nations. How?" Do you live in a spider hole. Have you seen Somalia or other failed government states.
written by Nancy Irving, April 07, 2011 12:47
A little off topic, but I'd also like to point out that those who think they'll be exempt from this new regime because Ryan has "promised" that those now retired, or who will retire within the next ten years, will be allowed to keep their traditional Medicare, had better think again.

The only reason these folks are being told they will be able to keep their socialized Medicare is that they currently make up a large and potent voting bloc.

But this is a bloc that will decline every year as people in the oldest cohort die off, to be replaced by younger folks who will not, under Ryan's new regime, enjoy the benefits of traditional Medicare; who, indeed, may be actually hostile towards their seniors, who have things so much better. (This is typical of GOP divide-and-conquer schemes.) At a certain point, those still in traditional Medicare will no longer make up a large enough voting bloc to matter, and the GOP will then take away their traditional Medicare as well.

To quote Paul Krugman, any current or near-future Medicare beneficiary who votes GOP in future can be described with one word: SUCKER!
written by cbb, April 07, 2011 1:12
I agree with many of you. Cut defense, at least to some extent. People need to realize that the hawkishness is only creating more paranoia. It is a self-perpetuating nightmare that continually creates justification for its existence. Many government agencies, in fact most, inflate their essential value in order to justify their growth and continued existence. My husband said it best, in my opinion: it's like a tick that grows a dog. Our national consciousness is willing to fund, via deficit capitalism (corporate welfare) BIG pharma, BIG industry and the BIG military industrial complex, and this is CAPITALISM?? Market forces at work?? Our capitalist government has created a totally unequal playing field, where big corporations make profits, and feed off the population, absorbing huge profits, while tax paying population gets to absorb all the losses. How is it that people come up with the notion that funding education, universal healthcare and income security for the elderly and disabled is socialism? Is it this askewed idea that we all somehow may one day be able to touch the hem of a millionaire's garment? I agree with our friend Mr. Pharo, let's have some vouchers for defense! and Hugh, I agree with you. After looking at other systems, (particularly health care, but other government programs as well) America propoganda loses its luster. SF, it's not SOMALIA that looks better, nor Haiti, or Mexico for pitties sake! It's places like Tawain, Germany, Japan, Denmark, Switzwerland. Check out this video for more of a review on how other capitalistic nations with socialized medical systems. For-profit health insurance is the problem. http://www.pbs.org/wgbh/pages/...dtheworld/
On the Solidarity of the Master Class
written by JHM, April 07, 2011 4:04

Forty mules could not drag anything into the Bakerite System that is not there already, but it strikes me as remarkable that with so many peanut-gallery peanuts, presumably broader of mind than Himself, nobody thinks it worth mentioning that Ronpaulryancare won't even *begin* to save (or deathpanel) any geezers for ten or eleven years.

Nobody with that little laddie's smirk could have a sense of humor too, but in principle it would be a fine send-up of the PPACA legislation: "Four years before anything much happens? See you, and raise you eight!"

Naturally that leaves the poor (and seriously prose-challenged) C. B. O. mostly talking malarkey about parallel universes that we shall know nothing of. Like that 32%/35% fuss, from which I suspect the only thing of any practical value that can be deduced is that they expect medicine in America to be nearly three times as outrageously expensive in 2030 as it is now. Though that, too, *could* be spoof at the expense of the Janesville Genius, who will have saved his three percent but overlooked sixty-five.

Meanwhile, I would not be happy with the J. G., were I a TopPercenter an’ generous funder of the Party of Grant & Hoover. Dr. Smirk is behavin' like the worst kind of ivy-tower bicycle parker, totally neglectin' that key principle "Life is short: eat dessert first!"

"Where is my dessert, Congressman? How can I get richer tomorrow by developin' innovative health-care financial gimmicks that nobody will need for years an’ years? Which side are you on, boy?"

Happy days.
Reading Comprehension
written by BV, April 07, 2011 7:03
jhand & curlydan:

If you'd actually read my post, you'll see that I noted the CBO's (bogus) assertion that Medicare is more efficient than private insurance. That is the ONLY basis for the (supposed) extra expense to seniors under Ryan's plan.
written by Nancy, April 07, 2011 10:56
sure medicare pays 20% of what medical expenses it covers. it does not cover drugs. Every hospital stay costs $1100. I receive $1200 a month in Social Security. My prescriptions cost
$200. I have to go to the hospital. Now what?
Another scenario, i don't go to the hospital but I have to see the Dr. once a week for 4 weeks. 20% of $400 = $80, so this month I can eat. I live with my son, so I have a roof. What if i need dialysis or in home oxygen. these are monthly expenses. 20% seems like a low number until you start multiplying it times what medical costs in this country. Remember 8th grade math: .2 x 1000 = 200 and .2 times 5000 = 1000. Social Security, pensions and 401k's for us "middle class" folks only stretch so far. Maybe congress should consider funding Kevorkian clinics that we could go to for a one time 20% co-pay.
Trying to post numbers
written by BV, April 07, 2011 12:01
I've tried twice now to post numbers justifying that Medicare is more costly than private plans, but both times was informed that "the administrator" would need to approve the posts. I guess "the administrator" isn't interested in factual analysis...

I'll try in smaller chunks...

Part 1
written by BV, April 07, 2011 12:03
2009 Medicare spending: $508B
Various studies estimate 5-15% for admin costs when everything is included.
That gives $25.4B for admin for ~46M enrollees: cost per enrollee is ~$550.
Part 2
written by BV, April 07, 2011 12:05
According to CBO.gov, insurance industry spends $90B on admin (including executive salaries and profits). According to Census Burear, 194.5M are on private insurance. This gives ~$460 per enrollee in admin costs.
Thus, private insurance has lower per-enrollee costs than Medicare.
The point
written by BV, April 07, 2011 12:08
If you look at the CBO analysis of Ryan's plan, the supposed extra cost to seniors is entirely due to their (absurd) assumption that private health plans will cost 50% more than Medicare. This assumption is not supported by the facts. Once you eliminate that assumption, the Ryan plan pays out only 3 percentage points less than current Medicare, and that savings comes from reducing benefits to high income individuals - note too that some of the reduction in high income benefits goes to low income and poor health seniors in the form of HSA contributions.
written by BV, April 07, 2011 12:10
Note in Part 1 that I used the low end of the estimates for Medicare admin costs. Note too that Medicare is exempt from state premium taxes (as much as 5% in some states) and from state regulatory compliance. Even with these advantages, and even with using the LOW END of the estimate for Medicare admin costs are nearly 20% on a per-enrollee basis than private insurance.
written by jhand, April 07, 2011 8:27
To BV: I worked all day and just read your response to mine and other's posts. Believe me, I did read your post as well as the CBO's report. Please, it is not an "assertion" that Medicare is more efficient that private health insurance, it is a fact. Medicare's administrative costs run at rate of 5%, compared to private insurance rates in the 20% range. Look, I am not one to disparage private health insurance in general. However, private insurers do exclude people, raise rates when they believe they need to, and don't necessarily cover all the procedures that the insured believe are covered. I don't know why it's necessary to defend private insurance against Medicare; many Medicare users take out special policies to cover deficiencies in Medicare (nursing home care being one case). The history of private health insurance is such that we have to assume that, no matter how big Ryan's vouchers get, they will never adequately cover private premium costs. And anyone relying on private health insurance need read the fine print very carefully to be sure they are getting the coverage they think they are buying. Let's not forget that this "plan" is part of a plan that predicted driving down unemployment to a number so embarrassingly wrong that American Heritage had to pull the numbers off of its website.
written by jhand, April 07, 2011 9:29
A correction: I said "American Heritage." I meant to say "American Enterprise Institute." I was distracted because I had to go buy materials for my classroom, materials that the school can no longer afford. My apologies for the error.
written by jhand, April 07, 2011 10:14
I'll get it right yet. According to Krugman, it was the Heritage Foundation that posted and pulled the bogus numbers. Mea culpa, mea culpa, mea maxima . .
Still not reading
written by BV, April 08, 2011 10:28

Either you're not reading the whole thing, or you're missing the point.

Stating admin costs on a "percentage of medical costs" basis is not useful. No administrative costs are proportional to the dollar value of medical services.

Most administrative costs (enrollment, collection of premiums, providing, plan information, general management, information technology) are proportional to the number of enrollees. Even claims processing isn't related to the dollar value of medical services - rather it is related to the number of claims. Seniors tend to have high-dollar medical services (hip replacement, heart surgery, etc.), which makes the administrative costs look like a small percentage. And according to the CBO, claims processing only makes up ~8% of total administrative costs. So a per-enrollee number for administrative costs is a much better way to compare efficiency.

In actuality (and I've provided the numbers in detail), if you look at costs on a per-enrollee basis, Medicare costs more than private insurance.
Read the fine print
written by BV, April 08, 2011 10:31
Jhand wrote:

And anyone relying on private health insurance need read the fine print very carefully to be sure they are getting the coverage they think they are buying.

The implication of this statement is that those on Medicare don't have the same issue. That's not true. My parents are on Medicare, and have had a number of issues with Medicare not covering something they should.
Some examples to make things clear
written by BV, April 08, 2011 10:46
Two examples to drive the point home:

Consider a 25-year-old who has medical insurance, but needs no medical treatment over the course of the year. For that individual, administrative costs made up 100% of the insurance company's costs. Does that mean the company was inefficient?

Consider the difference between a 4-year-old and a 65-year-old who has a hip replacement. We'll assume that both cost the insurance company $400/yr in administrative expenses. For the 4-year-old, one checkup will cost $100, so the insurance company is paying 80% in administrative costs. For the senior, the hip replacement will cost $10,000, so Medicare is only paying 4% in administrative costs. Is this because Medicare was more efficient?

What you must consider is that the make-up of the enrollees is different between overall private insurance and Medicare. That difference makes Medicare look more efficient when the numbers are stated as a percentage of medical services - but that's because Medicare recipients receive more and higher dollar medical services. In actuality, Medicare has higher per-enrollee administrative costs. Switching to private insurance will not drive costs up 50%.

Even if you accept the (misleading) 5% vs 20% argument (which would indicate a 17% difference in costs - 100/85 = 1.17 ), exactly how does that magically balloon into a 50% difference (100/66 = 1.50) in 2030?
have you thought?
written by freddieo66, April 08, 2011 12:42
no one has considered the fact that if seniors cannot afford medical care they will still go to the emergency room, they will not simply lay down and die. How many poor seniors along with the other 42 million uninsured will it take to overwhelm the hospital system and end medical care even for the rich? The system will collapse because of unpaid bills.
The system won't collapse.
written by BV, April 08, 2011 1:21
There won't be any more unpaid bills with Ryan's plan because the level of support for most seniors will be roughly the same. Support for high-income seniors will be lower, and support for low-income and poor-health seniors will be higher (via federal contributions to HSA accounts for those individuals).
written by Look Ahead, April 13, 2011 10:19
I find it interesting that the CBO analysis and the discussion is about premiums for a 65 year old person. The CEPR has calculated that a 75 year old would spend over $40,000 a year or 143% of median annual income after the Medicare contribution, based on the Ryan plan. Think about it, what private insurer would even write a policy for the average 75 or 80 year old?

Check it out


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Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.