Ryan's Plan

Posted: May 08, 2011 12:01 AM

Rep. Paul Ryan (R-WI) has proposed a Medicare reform plan that is being contrasted with the approach adopted by the Patient Protection and Affordable Care Act (PPACA), what some people call ObamaCare. The plan is the centerpiece of the House Republican budget; it's attracting a lot of criticism from the Obama administration and from left-of-center commentators; and even Republicans seem to be backing away from it.

Both ObamaCare and Paul Ryan propose very large cuts in Medicare spending — cuts that will continue indefinitely into the future. As I said in a previous post, neither plan has a serious proposal to slow the rate of growth of health care spending overall. So under both plans, the amount that the federal government will spend on care for the elderly and the disabled will fall further and further behind what everybody else is spending. (See the spending charts here.)

Looking indefinitely into the future, the approach of ObamaCare is to continue to squeeze the providers. Fees paid to doctors and hospitals would grow at roughly half the rate of growth of fees paid by BlueCross and everyone else. Ironically, for the next decade Ryan's approach pretty well follows the ObamaCare path. But from that point on, it diverges and allows doctor and hospital fees to be determined in the marketplace. Ryan would limit instead the amount Medicare pays to private insurers, who would operate much like Medicare Advantage plans operate today.

Of the two approaches, Ryan's is definitely better — once you get past the first ten years. Obama's approach relies completely on something that has already been tried and failed: price controls. Ryan (at least eventually) would allow market forces to have greater sway. Under Ryan’s approach, doctors and hospitals would be free to offer different bundles of services that meet needs that are now going unmet. For example, they could offer primary care combined with telephone and email consultations, same day appointments, entrées to specialists, etc, much as “concierge” doctors are offering today. Under the Obama approach, however, everyone would be stuck with the basic dysfunctional system we currently have — with Washington dictating what services Medicare will pay for and how much.

Even so, there will be fewer federal dollars available for senior medical care, relative to trend, under both approaches. One of two things can happen. Either seniors will supplement the reduced federal payment by paying more out of their own pockets, or providers will have to provide lower-cost care. This latter possibility will certainly mean fewer amenities (e.g., no private rooms, fewer inpatient menu choices, etc.) and will also probably mean a lower quality of care.

To prevent this unpleasant outcome, both plans need three things neither plan has. First, they need a way for young people to save, tax free, during their working years so they have funds set aside to supplement the federal government's increasingly smaller contribution. Second, both plans need to start freeing the Medicare system immediately — encouraging doctors and hospitals to repackage and reprice their services so that care can be provided more efficiently. Finally, both need to do something Capitol Hill has resolutely resisted year after year: pass the kind of reforms that will reduce health care spending overall.

On the sociology of reform, what can I say? Columns by Alan Blinder, Paul Krugman, Ezra Klein, Uwe Reinhardt and others excoriate Ryan and his colleagues because the proposed Medicare “premium-support credits” would be indexed to consumer inflation, not health costs. Yet the ObamaCare Medicare plan also has spending growing at a rate well below overall health care costs and these same columnists have uttered not a peep of protest about that in the year since its passage. On the other side are columnists who can offer only praise for Ryan.

It’s hard to escape the conclusion that quite a few op-ed writers and bloggers are more concerned with doing the bidding of the two parties rather than finding workable solutions to difficult problems. Gail Wilensky and Timothy Jost are two of the very few commentators with a balanced approach.

Health reform ideas are good or bad in their own right. They do not become more or less desirable because of the people or political parties who support or oppose them.