In less than a week the hysteria surrounding Rep. Paul Ryan’s 2012 budget proposal has reached fever pitch. Seniors “will be thrown off of Medicare,” according to Rep. Sheila Jackson Lee (D-Texas). In fact, seniors will die, according to the newly installed chairman of the Democratic National Committee, Florida Rep. Deborah Wasserman Schultz. New York Times columnist Paul Krugman merely says this “cruel” plan would “deprive many if not most seniors of adequate health care.”
Please, could we at least come within touching distance of reality?
Faced with a budget deficit of $1.65 trillion this year, an on-the-books national debt of $14.3 trillion, and a real debt (including the future liabilities of Medicare and Social Security) of as much as $119.5 trillion, Ryan (R-Wis.) proposes cutting spending by $6.2 trillion over the next 10 years. It is a sign of how deep a hole we are really in that despite cuts of this magnitude, the national debt will increase by $6 trillion over the next decade even under Ryan’s plan.
The most important part of Ryan’s proposal, however, is not the budget cuts; it is the idea of restructuring two of the government’s biggest entitlement programs: Medicare and Medicaid. (He leaves Social Security untouched). That is what has set off the warnings of impending doom.
But here is what Ryan actually proposes. Everyone who is on Medicare today will be able to stay on the program just as it is. In fact, because Ryan would also repeal the new health care law, seniors in the Medicare Advantage program will actually be able to keep their current plan, whereas ObamaCare would have forced as many as half of them out of their current insurance and back into traditional Medicare. Therefore fewer seniors will lose their insurance under Ryan’s plan than under current law.
Those getting close to retirement will also still go into Medicare, just as they would have before. But beginning in 2022, people who are younger than 55 today will begin to transition to a new system. Instead of going into Medicare at age 65, they will receive a voucher from the US government to help them purchase private health insurance. Initially that voucher is expected to be for roughly $15,000 per recipient. Lower income seniors and those with higher health care costs because of illness will receive a bigger subsidy. Seniors can use these vouchers, combined with whatever they wish to spend of their own money, to choose an insurance plan that has a cost and mix of benefits that best meets their needs. Instead of a one size fits all system, seniors will have many more choices than they have today.
Ryan’s plan is based on a model that he originally worked on with Alice Rivlin, President Bill Clinton’s budget director. (Now there’s a rabid right-winger).
Will it mean that in the future seniors will have to pay more of their own money or settle for a plan with fewer benefits, as Democrats have charged? Quite probably.
But here’s the dirty little secret: That is going to happen with or without Ryan’s plan. Even if you accept the Obama administration’s most rosy scenario, Medicare is facing unfunded liabilities in excess of $45 trillion. More objective estimates suggest that Medicare’s shortfall could top $89 trillion. Medicare simply cannot continue to pay all the benefits that it has promised.
Traditionally, the federal government has responded to Medicare’s insolvency by cutting reimbursements to providers. That approach, though, has gone about as far as it can go. Medicare now reimburses hospitals and physicians only about 80% of their actual costs, meaning more and more physicians are refusing to accept Medicare patients. An estimated 12% of physicians no longer see any Medicare patients; as many as a third are not accepting new patients.
The alternative to cutting reimbursements is for the government to directly ration care. That, of course, is what national health care systems in countries such as Canada or Britain do.
Ryan recognizes that Medicare cannot simply continue to promise paying for everything for everyone, when it doesn’t have the money to do so. But rather than have the government impose rationing from the top down, he shifts those decisions to individuals. Under his proposal, seniors who want benefits beyond a basic level will have to pay more of their own money for a plan that covers those services. Since they are spending their own money, they will have to make decisions on cost versus value. This is cost control from the bottom up, rather than from the top down.
Ryan is equally innovative with the government’s other big health care plan, Medicaid. Here Ryan would follow the lead of the successful Clinton era welfare reform and return funding and responsibility for the program to state governments in the form of a block grant. Of course, the same hysterical voices warned back then that a welfare block grant would lead to millions of children starving in the street. The reality has been that state innovation and experimentation has reduced welfare rolls, and reduced overall poverty rates, child poverty rates and black child poverty rates.
Ryan is betting that relying on the “laboratories of democracy,” in Justice Brandeis’ immortal phrase, will generate similar results.
One can always honestly disagree with Ryan’s plan for entitlement reform and debt reduction. But wouldn’t it be nice if his critics had a plan of their own instead of hysterical insults?
Michael D. Tanner is a senior fellow at the Cato Institute and the author of “Bankrupt: Entitlements and the Federal Budget.”