Rising Medicare costs are daunting and could adversely affect even the most carefully considered retirement planning, but reforms that aren't well considered could be equally costly.
A new report by the Urban Institute, a nonprofit public-policy think tank, calculates that the healthcare reform -- the Affordable Care Act -- will reduce the projected growth of the cost of Medicare funding by $500 billion over 10 years and hold increases in spending per beneficiary to about 3.5 percent per year. But that number doesn't take into account the increase in physician fees that are likely to occur, which the Urban Institute calculates at $300 billion over 10 years, erasing much of the savings from Affordable Care Act reforms.
The institute also argues against the proposal by U.S. Rep. Paul Ryan (R-Wisc.) to move people who are currently younger than 55 to a plan that would offer a voucher that recipients could use to buy private health insurance. Any cost over the amount of the voucher would be the responsibility of the recipient. This plan would cost more than the current one, the institute says, because Medicare as it is currently operated is a 10,000-pound gorilla. If it says it will only pay $X, then that's what it pays, and healthcare providers have to figure out how to live with it. Without Medicare's impact, prices are likely to go up. Nationally, private insurance rates are 25 percent higher for physician services and about 40 percent higher for hospital services, the institute says.
The institute also points out that 69 percent of Medicare recipients use less than $5,000 worth of benefits per year. Another 23 percent are using less than $10,000 in benefits. The remaining recipients -- generally people with serious health problems or chronic conditions -- represent only 8 percent of the Medicare population. So the cost-sharing aspects of the Ryan plan may not be very significant.
It looks like the biggest beneficiaries of the Ryan proposal will be insurance companies.
Those of us who are older than 55, close to retirement or there already are unlikely to be affected much by proposed changes to Medicare, but younger people should pay close attention. Shortsighted reforms could be very costly.