Health Care Policy

03.08.13

Should We Substitute ObamaCare for Medicare?

Olivier Douliery-Pool/Getty Images ()

This post by Avik Roy at National Review Online is worth your time and thought.

Roy argues for using Obamacare as a partial substitute for Medicare. Roy's idea seems a feasible concept. It also raises a very important and difficult question. But first, the key paragraphs:

Obama’s victory means that Obamacare will be implemented, warts and all, making it politically impossible to repeal, even if Republicans are fortunate enough to retake Washington in 2017.

How does that affect entitlement reform? By making it much easier to raise Medicare’s retirement age. If Medicare’s eligibility age increases, younger seniors will have another option for gaining subsidized coverage: Obamacare’s insurance exchanges.

The exchanges use a premium-support system that is nearly identical to the one that Paul Ryan proposes for Medicare. There are two key differences. First, Ryan’s most recent proposal included a government-run “public option”; Obamacare’s exchanges do not. Second, Obamacare’s exchanges contain significant means-testing provisions; if the entire Medicare population were eventually to migrate over to these exchanges, the wealthiest quartile of retirees would move off the government-health-care rolls altogether. By contrast, the Ryan plan provides subsidized coverage to all seniors, even the very wealthiest.

In other words, raising Medicare’s retirement age — say, by three months a year, every year, for the foreseeable future — would be a simple way to introduce premium support to younger seniors while making no changes to the program for current retirees and older future ones. In addition, because such a measure would move the wealthiest seniors off of government assistance altogether, it would likely reduce spending more quickly than the old Ryan plan did. And lower-income seniors who want to retire at 65 could still do so, because they would remain eligible for subsidized coverage in the Obamacare exchanges.

Now the question. We don't yet know whether premium support will be effective in holding down medical costs. However, we do know that Medicare pays less than existing private insurance programs. A shift from Medicare to Obamacare for people aged 65 and 66 would reduce costs to the federal Treasury.

But what if it had the effect of raising health costs to the economy as a whole? Would that represent progress? Health is both a fiscal and an economic problem. But what if we can only address one or the other aspect: if we must choose between cutting the fiscal cost or cutting the economic cost? Which should then be the higher priority? I don't find this an easy question to answer.