Common questions to Medicare answered

Medicare consists largely of two programs — Medicare Part A, which pays hospital costs; and Supplemental Medical Insurance (SMI), which pays the costs for physicians and prescription drugs. Part A is financed through a payroll tax on companies and workers while SMI is financed through premiums on individuals and general federal tax dollars.

Mitt Romney’s vice presidential running mate, House Budget Committee Chairman Paul Ryan, R-Wis., has outlined a long-term budget plan that includes major changes in Medicare, some of them controversial. Republicans argue that the Medicare program will go bankrupt without changes. At the same time, Romney says that if elected he will restore the $716 billion from Medicare that President Barack Obama shifted to help finance the 2010 health law he signed.

Q: Does President Obama cut $716 billion from Medicare spending?

A: Yes. But the context used by Republicans is misleading. To make certain that the 2010 health law did not add to the federal deficit, Congress agreed to save $716 billion in Medicare costs during the next decade. Congress achieved those savings by cutting $156 billion in proposed spending for Medicare Advantage, which has 11.9 million enrollees and offers them access to private plans. Congress also mandated $260 billion in savings by lower payments to hospitals.

But those savings are cuts in the rate of growth of Medicare as opposed to actual spending cuts. The non-partisan Congressional Budget Office calculates that Medicare spending will increase from $560 billion last year to $1 trillion in 2022. In addition, Ryan assumed those $716 billion in Medicare savings when he drew up his budget this year.

Q: If you are 65, do you lose your Medicare coverage under the Ryan plan?

A: No. The Ryan Medicare plan has no impact on anyone in the United States age 55 or older. However, starting in 2023 Ryan would give people the choice to remain in Medicare’s current fee-for-service plan in which the government pays most costs or take part in a new premium support system — what Obama is characterizing as a voucher program — that would allow seniors to buy a private insurance plan. Here is how it would work: The government would subsidize the costs to the individual by providing a set amount of dollars to an insurance company. The annual federal payment would be capped at $7,400 by 2030 even though the CBO calculates the government’s annual cost per recipient would be as high as $9,600 a year in 2030. Ryan and Republicans have argued that intense competition among insurance costs would actually restrain the growth in health costs. The CBO calculates that by the year 2050, Ryan’s plan would grow to 4.75 percent of the nation’s gross domestic product compared to 6.5 percent under Obama’s plan.

Q: Is Medicare financially secure?

A: Not really. The 2012 report by the Medicare Trustees — a board that includes Treasury Secretary Timothy Geithner and Health and Human Services Secretary Kathleen Sebelius — projects that with0ut any changes the Medicare hospital trust fund will be bankrupt by 2024. That does not mean that millions of seniors in 2025 will lose their coverage, but the trustees say the government would be forced to make up the difference through either higher taxes or shifting government spending from other programs.

A big reason for the shortfall: Millions of baby boomers are retiring and they are living longer than their parents. The trustees project that Medicare enrollment will increase from 48.7 million last year to 64 million by 2020.

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