Final faceoff

WASHINGTON – They are two of the largest parts of the federal government. They’re growing. And they’re heading toward financial problems that will touch tens of millions of Americans unless something changes.

Medicare is the nation’s biggest buyer of health care, spending $550 billion last year to provide care for 48.7 million Americans. The problem is that the taxes paid by workers and employers to finance the program aren’t covering the full cost, and the government since 2008 has been drawing off its trust fund to make up the difference. Barring changes, the trust fund runs out in 12 years – 2024 – and the government would have to raise taxes or cut services.

Social Security, which provides benefits for 55 million people, is in better financial shape, but the funds that support it are projected to run out in 2033 – three years earlier than was predicted just last year.

President Barack Obama and Republican presidential nominee Mitt Romney offer vastly different approaches to putting both popular programs on sound financial footing. Both offer more details for Medicare than Social Security.

Obama relies on the already enacted Patient Protection and Affordable Care Act to fix the problem. Romney wants to repeal that law and instead change the system starting in 2023 to give people a check to use to buy their insurance – either the existing Medicare coverage from the government or other coverage from a private insurer. If the insurance costs more, the individual would have to make up the difference. If it costs less, they could keep the difference in a health care account.

Here’s what each candidate would do:

Medicare

Obama would:

• Use the Patient Protection and Affordable Care Act to transform, trim and sustain Medicare.

• Reduce projected annual payments to health care providers and Medicare Advantage plans.

• Impose new fees on drug companies, medical device makers and insurers.

• Improve prescription drug coverage and pay for free preventive care.

Obama’s plan to restructure Medicare centers on the health care overhaul he signed into law in 2010, much of which has not yet been implemented.

First, his plan cuts projected Medicare spending by $716 billion from 2013 to 2022. The savings would come mainly from lower annual payment increases for hospitals and other care providers, higher premiums for affluent beneficiaries and lower payments to Medicare Advantage plans, the private plans that provide Medicare benefits, according to the Kaiser Family Foundation.

While services for Medicare beneficiaries would not be directly affected, some experts, including Medicare’s chief actuary, Richard S. Foster, have questioned whether the spending reductions could end up limiting services for beneficiaries in future years.

In the 2012 Medicare trustees report, Foster expressed concern that lower payments to health care providers would not cover the cost of medical services in later years and could lead to a shortage of care providers similar to what the Medicaid program is experiencing now. If that occurred, Foster said, Congress might have to increase payments, which could lead to higher Medicare costs than are currently projected under the law.

Second, the law adds new revenue to Medicare from a 2014 payroll tax on high-income workers and new fees on drug companies, medical device makers and insurers – all industries that will see substantial new revenue when the law mandates millions of uninsured Americans to start buying insurance in 2014.

Romney would:

• Repeal the Patient Protection and Affordable Care Act.

• Replace the current Medicare system, starting in 2023, with a “voucher” or “premium support” payment plan.

• Let people use the voucher to purchase private coverage or traditional Medicare coverage.

Romney’s proposed overhaul wouldn’t affect current Medicare beneficiaries or those nearing retirement, only those who enter Medicare beginning in 2023.

Starting in 2023, he’d give government vouchers to people to buy their own insurance. The idea is that private insurance companies would compete for that business, providing more value and better quality while driving down prices.

If their medical costs exceed the amount of their voucher, seniors would have to pay the difference regardless of whether they’ve chosen private insurance or traditional Medicare. The amount of the voucher would be equal to the cost of traditional Medicare in that area or the second-least expensive private plan that offers benefits equivalent to Medicare – whichever is less. The voucher amount and the cost of coverage would differ depending on the region of the country.

If the cost of coverage is less than the amount of the voucher, the balance would be available in an account similar to a health savings account to pay for other out-of-pocket health expenses, according to the Romney campaign.

Romney says the voucher system provides enrollees a better choice. Critics say insurers would end up recruiting younger, healthier seniors under the new system, leaving traditional Medicare with older, sicker people who are more costly to care for.

The Kaiser foundation expects that beneficiary co-pays and premiums would rise under the voucher plan.

Medicare’s Hospital Insurance Trust Fund also would become insolvent eight years earlier – in 2016 instead of 2024 – if the Patient Protection and Affordable Care Act were repealed, according to the Centers for Medicare and Medicaid Services. That’s because the added revenue from fees would be lost and the $716 billion in spending increases to health care providers would return.

Social security

Obama:

Said last week that Social Security was “structurally sound” but needed to be “tweaked.”

Obama has not proposed any changes in Social Security. But he has said he’s open to raising taxes by taxing some amount of income above $110,100, the annual level at which Social Security taxes now stop.

Romney:

Would increase Social Security’s eligibility age by one month per year beginning in 2022 and index future program eligibility to life expectancy. He also wants to slow the rate of benefit growth for high-income recipients.