McCain's Medicare Cuts Would Mean Hidden Tax Increases for Millions of Americans

Sen. John McCain (R-AZ) recently admitted he would cut $1.3 trillion from Medicare and Medicaid over the next ten years to finance his health care plan. McCain's proposed cuts echo former House Speaker Newt Gingrich's 1995 effort to cut $270 billion, or 14 percent, from projected Medicare spending over seven years and force millions of elderly recipients into managed health care programs or HMOs. As Gingrich admitted, "We don't want to get rid of it [traditional Medicare] in round one because we don't think it's politically smart." "But we believe that it's going to wither on the vine because we think [seniors] are going to leave it voluntarily," he added. Despite McCain's career-long support for limiting Medicare benefits and eligibility, the campaign, is denying that its financing mechanism would undermine benefits. Appearing on CNN, McCain senior policy adviser Douglas Holtz-Eakin implied that "McCain would save money in the federal health programs" by focusing on preventive care and weeding out $1.3 trillion worth of inefficiency and fraud. Nonetheless, a Center for American Progress Action Fund (CAPAF) analysis of the senator's proposed cuts finds that McCain but also undermine Medicare and Medicaid benefits and eligibility and would force those with private insurance plans to pay more for health coverage out of pocket.

CUTS IN MEDICARE: To achieve his goal of cutting Medicare by 13 percent over 10 years, McCain will have to limit growth in enrollment and medical price inflation to 4.5 percent annually. To maintain the current operations of the existing Medicare program, however, a growth rate of at least 7.1 percent is needed over the next 10 years to cover the 2.7 percent average annual growth in enrollment and a projected rate of medical price inflation of 4.4 percent. Absent another change in his plan, McCain would have to reduce Medicare eligibility, reduce benefits, and/or increase cost-sharing. Either approach would jeopardize the benefits of existing beneficiaries and severely limit the program from accepting new enrollees.

CUTS IN MEDICAID: Assuming McCain's proposed cuts are proportionally divided between the two programs, McCain would also slash Medicaid spending by 13 percent over 10 years. McCain's cuts would limit Medicaid growth to 5.5 percent annually -- a six percent growth rate barely keeps up with medical inflation and enrollment growth -- and would likely yield a parallel cut in state funding. As a result, McCain's plan would result in a total reduction in Medicaid spending of $738 billion over 10 years, more than the cost of providing benefits for all Medicaid beneficiaries for two years. These cuts will likely cascade into the State Children's Health Insurance Program the federal program that covers millions of children who otherwise would not have access to health insurance.

COSTS SHIFT TO PRIVATE INSURANCE: If the government's support of public programs fall, those with private insurance will end up paying more as health care providers shift costs to private payers. Low payment rates in the public market will lead health care providers to pursue higher payments from the private market. As CAPAF Senior Fellow Peter Harbage points out, this cost shift represents a "hidden tax" on Americans with private insurance. Private payers will pay higher premiums and deductibles in order to make-up for McCain's radical cuts to public programs and would also finance more expensive emergency room care for individuals who are no longer covered by Medicaid. A 2005 study by Professor Ken Thorpe of Emory University concluded that cost-shifting nationally accounts for 8.5 percent of premiums. Unfortunately, McCain's proposed cuts to Medicare and Medicaid will only increase the "hidden tax" on millions of Americans.