News Ticker

Paul Ryan’s Medicare Plan

Paul Ryan’s (R-WI) plan for Medicare would save costs to the federal government at the expense of senior citizens by fundamentally restructuring this defined benefit entitlement to a defined contribution. Is it good or bad? Ask the voters.

You know the name Paul Ryan (R-WI), but you’re not exactly sure what the controversy around his Medicare proposal has been all about.  Of course this proposal is supported by Republicans and shot down by Democrats. Yet, the substance of Representative Ryan’s “Path to Prosperity” proposal available through major news stories is not quite sufficient for you to make your own opinion.  The Kaiser Family Foundation (KFF) has come to the rescue by recently releasing a summary of the proposed changes to Medicare found within the “Path to Prosperity: Restoring America’s Promise.” As succinct and focused as Kaiser’s published overview is, the busiest and most ADHD-plagued of readers need something more to-the-point; read on for our overview of their overview.

Under the Ryan proposal, the Medicare system would transform from a defined benefit (where Medicare pays providers and hospitals for specific enrollee benefits and services) to a defined contribution (where Medicare instead would pay individual enrollees a lump sum to help them purchase private health insurance).  Medicare enrollees would pick among competing private insurance companies in a Medicare Exchange.  The average 65 year old Medicare enrollee would receive about $8,000 annually from the government, leaving about $12,000 in medical expenses for the individual to pay, as estimated by the Congressional Budget Office (CBO).  The average annual social security income is about $25,000.   Payments from the government would be adjusted for each individual based on their health status, age, and income.  Annual enrollee payments would increase yearly based on the consumer price index (CPI), which is a popular way to measure inflation over time.  Also, the age of eligibility for Medicare enrollment would increase from 65 years to 67 years old by the year 2022.

In addition, the Ryan proposal would also repeal two aspects of the recent health reform legislation: the Independent Payment Advisory Board (IPAB) and the “doughnut hole” fix.  The IPAB would be a senate-approved independent committee whose task would be to monitor Medicare spending and regulate it if it escalates too fast.  The “doughnut hole” fix represents increased coverage for Medicare enrollees’ prescription medications, which, in theory, would not be needed if enrollees were subsidized to purchase private insurance with prescription coverage through the Ryan proposal.

Overall, the CBO estimates that this system would significantly curtail government Medicare spending and decrease the federal deficit over time. However, by shifting from a defined benefit to a defined contribution, the Ryan plan greatly increases the out-of-pocket expenses for Medicare enrollees and increases the per-enrollee cost of care.


As policy makers and voters consider how our nation should cut back on costs for our Medicare system, approval or disapproval for this specific proposal will likely stem from an individual’s belief on which group in the healthcare system should have the financial risk – and therefore the responsibility – to make choices regarding how to ration care.  Should the federal government pay accountable care organizations (providers such as doctors or hospitals) a lump sum to decide what care should be provided to their patients for that limited amount of money?  Should the government pay HMO’s (insurers) to take that same role?  Or should the government pay individual enrollees, as in the Ryan proposal, to ration their own healthcare?  One could argue that giving individuals that type of responsibility with their finances and healthcare choices is either a good or bad thing.

Not arguable, however, is the fact that the Ryan proposal suggests that the annual lump sum payments be derived by a formula based on the CPI, which has historically shown to increase at a much slower rate than cost of Medicare; therefore, whoever does take a financial risk would be increasingly squeezed dry over time, similar to the situation with physician reimbursement and the sustainable growth rate (SGR) formula.

Proposed Changes to Medicare in “Path to Prosperity”: Overview and Key Questions. Kaiser Family Foundation. April 2011.

by Lisa Maurer, MD


Lisa Maurer, MD
About Lisa Maurer, MD

Dr. Maurer graduated from the University of Minnesota with a bachelor’s of science in Neuroscience. She earned her medical degree from University of Minnesota. She completed her residency in Emergency Medicine at the George Washington University and currently is an attending physician with Emergency Medicine Specialists in Milwaukee, WI where she serves as Legislative Liaison. Contact: Facebook | More Posts

4 Trackbacks & Pingbacks

  1. 2011 Year in Review | Policy Prescriptions
  2. A Health Wonk Divided | Policy Prescriptions ®
  3. How do we solve a problem like health care reform? | theGrio
  4. Transforming Medicare via Premium Support | Policy Prescriptions ®
%d bloggers like this: