The program was instituted in the 1960s, a companion to Social Security to keep late-life illness from leaving seniors destitute and bankrupting their families. All workers started kicking into the program with the promise help would be there for them when they retired but benefits began flowing immediately to a generation that had not paid in, thus younger generations were financing their elders' care.
It worked just fine as long as there were enough workers to support an aging population. But then a funny thing happened demographically: The baby boom got older, straining a setup that was dependent on members of that generation paying in, not collecting. And care got more expensive -- lots more expensive -- as medical breakthroughs advanced and pharmaceutical firms developed drugs to combat illnesses that once were death sentences.
The Republican answer to shoring up the system is vouchers: giving seniors a cash grant to apply to the healthcare coverage of their choice, be it from private insurance companies or a government-run program. The Democrats' answer is to cut payments to doctors, hospitals and insurance companies, and to intensify anti-fraud efforts, perhaps cut benefits for those wealthy enough to pay for their own care.
During their debate last week, President Obama and GOP challenger Mitt Romney traded jabs over which approach is better.
"So my approach is to say, how do we strengthen the system over the long term? And in Medicare, what we did was we said we are going to have to bring down the costs if we're going to deal with our long-term deficits," Obama said, "but to do that let's look where some of the money is going -- $716 billion we were able to save from the Medicare program by no longer overpaying insurance companies, by making sure that we weren't overpaying providers and [by] using that money, we were actually able to lower prescription drug costs for seniors by an average of $600, and we were also able to make a significant dent in providing them the kind of preventive care that will ultimately save money throughout the system."
Romney objected, saying the $716 billion in savings is actually a cut to the Medicare program that will affect current seniors, ignoring that his running mate, Rep. Paul Ryan, R-Wis., achieved a similar reduction in the budget he crafted, which has been embraced by Romney and other Republicans. Fact-checkers at The New York Times, ABC and elsewhere pointed out the Republican plan would cut benefits and increase costs for current Medicare beneficiaries if the $716 billion in reductions was restored.
Romney repeatedly stressed the voucher plan does not include current Medicare beneficiaries or those now in their late-50s.
"For people coming along that are young, what I'd do to make sure that we can keep Medicare in place for them is to allow them either to choose the current Medicare program or a private plan -- their choice ...," Romney said. "They'll have at least two plans that will be entirely at no cost to them. So they don't have to pay additional money."
Obama argued Medicare has lower administrative costs than private plans and no profit motive.
"If you are going to save any money through what Governor Romney is proposing, what has to happen is, is that the money has to come from somewhere," Obama said.
"And when you move to a voucher system, you are putting seniors at the mercy of those insurance companies."
In further arguing against vouchers, Obama said: "What happens is ... insurance companies are pretty clever at figuring out who are the younger and healthier seniors. They recruit them, leaving the older, sicker seniors in Medicare, and every healthcare economist who looks at it says over time what will happen is the traditional Medicare system will collapse. And then what you've got is folks like my grandmother at the mercy of the private insurance system precisely at the time when they are most in need of decent healthcare."
The most recent report from the Medicare trustees indicates if no action is taken Medicare will run out of money by 2024. Analyses have indicated the Democrats' approach will extend the life of the program by eight years while the Republican approach will shorten its life by eight years.
Obama would restrain Medicare cost growth through an Independent Payment Advisory Board, which would be unable to propose anything that smacks of rationed care, change benefits or reduce subsidies for drug coverage. Cost controls would be placed largely on providers, which senior fellow Robert Moffit of the conservative Heritage Foundation said inevitably will lead to cutbacks in care.
Romney seized on the advisory board -- what former GOP vice presidential nominee Sarah Palin dubbed "death panels" in the 2008 race -- saying it would lead to the government telling doctors and seniors what kind of care can be provided. Obama said the board just would look at best practices and offer advice.
"It puts in place an unelected board that's going to tell people ultimately what kind of treatments they can have. I don't like that idea," Romney said.
Much of Romney's argument for repeal of Obama's signature healthcare reform law, the Affordable Care Act, rests on the 10th Amendment to the U.S. Constitution, which says powers not spelled out in the document belong to the states, not the federal government. Romney backs the universal healthcare law adopted in his home state of Massachusetts while he was governor because it was crafted by him and the Democrat-dominated Legislature and opposes "Obamacare," which was modeled on the Massachusetts law, because it was imposed by the federal government by a strictly partisan vote.
Romney said the federal law is a job-killer that will raise the cost of healthcare; Obama countered that didn't happen in Massachusetts and "when Obamacare is fully implemented, we're going to be in a position to show that costs are going down."
Heritage Foundation economist Rea Hederman takes issue with Democrats' assertions the proposed Medicare voucher system would cost retirees an additional $6,400, saying the Congressional Budget Office analysis is based on an outdated budget model that fails to take into account a traditional fee-for-service government plan alongside private insurance.
"With Medicare [fee-for-service] forced to compete on a level playing field with private plans under premium support, the overall cost of the Medicare program would decrease ... in comparison to current-law Medicare. As academic research shows, these savings can be quite significant. Indeed, they can improve the value of Medicare benefits to beneficiaries," Hederman said in a statement.
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