On Saturday, presumed Republican U.S. presidential candidate Mitt Romney picked Rep. Paul Ryan, R-Wis., to be his running mate. Together they vowed to reform Medicare to help control its costs.
How would their plan affect most people currently retired or close to implementing their retirement planning?
Ryan is the author of the plan, which was spelled out in the 2012 Republican budget proposal. At that point, he said there wouldn't be any immediate change to Medicare for people currently 55 and older. The changes would begin in 2022, when the age of Medicare eligibility would begin to increase by one month every year until it reached 67 in 2033. Older Medicare recipients would have the option of remaining in the original program or converting to the new one.
If your retirement is more than 10 years away, by then Ryan proposes to entirely eliminate Medicare's traditional fee-for-service structure. He would instead enroll all beneficiaries in what policy wonks call a premium support system. That means, he would give every recipient a flat amount of money to use to buy insurance in the private marketplace. This amount of money would initially reflect the average amount the government is spending per Medicare recipient at the time the change is made. After that, it would be indexed for inflation.
Ryan and supporters of his plan argue that this approach not only would save money because it would encourage providers and insurers to hold down costs, but also it would give recipients more leeway in choosing the kind of insurance they want. For instance, you might choose a policy that pays for home care while limiting payments for in-hospital treatment.
Skeptics argue there isn't much evidence that private insurers will be as effective in holding down costs as traditional Medicare has been. They point to Medicare Advantage plans, which have a similar, flat-fee approach and cost more than traditional Medicare. But that's a hazy comparison because the Ryan plan is significantly different.
Until the details are clear, who knows how this plan would actually work. But indisputably the goal of Ryan's plan is to keep the government from being responsible for extreme costs. So the question is: If the government isn't paying, will Medicare recipients, insurance companies or both be required to pick up the tab for catastrophic and long-lasting ailments?
That's a dilemma and one of many serious questions about this proposal we deserve answers to before we go to the polls in November.