Ryan Plan to Redo Medicare With Private Choices Stirs Doubts

Paul Ryan’s Medicare plan wouldn’t, as Democrats charge, end the program as Americans know it. It likely would increase costs or reduce benefits for many seniors.

Ryan’s proposal to overhaul the health-care program for 50 million elderly Americans, now at the center of the presidential campaign, would fundamentally reorder Medicare in a bid to control outlays that threaten to overwhelm the federal budget.

Where the program now has no limit on how much it spends, with its annual budget determined by the services provided, Ryan proposes to cap spending. He’d offer seniors a fixed amount of money to buy private insurance, which would transform Medicare into a program defined by its contributions, not its benefits.

The idea is that competition among insurers for their business will drive down costs. The proposal has plenty of skeptics, who say it will shift expenses onto seniors.

“No question” it will raise costs, said Uwe Reinhardt, a health-care economist at Princeton University, dismissing the claim that the market can solve the problem. “You can tell me that, and you can also tell me communism works if properly practiced. But show me the goods, show me that you could do that.”

Democrats have criticized congressional Republicans for backing Ryan’s plan ever since the Wisconsin lawmaker pushed it through the U.S. House in 2011.

Photographer: Justin Sullivan/Getty Images

U.S. Representative Paul Ryan, Republican vice presidential candidate. Close

U.S. Representative Paul Ryan, Republican vice presidential candidate.

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Photographer: Justin Sullivan/Getty Images

U.S. Representative Paul Ryan, Republican vice presidential candidate.

‘Too Much Risk’

His ideas would “shift too much risk to individuals and states at a time when we’re finally making solid progress in slowing health-care costs, and the rhetoric surrounding them claims savings that are never going to materialize,” Peter Orszag, who was President Barack Obama’s budget director, wrote in a column for Bloomberg View on Aug. 11. “That makes Ryan’s proposals problematic, unnecessary and misleading.”

Ryan, chosen on Aug. 11 by Republican presidential candidate Mitt Romney to be his running mate, responded to such complaints this year by softening the plan: He would give seniors the option of taking the vouchers or sticking with the traditional Medicare program, although those costs would be capped as well.

He tried to get the support of Oregon Democratic Senator Ron Wyden, to give the plan bipartisan backing. While they co- wrote a paper endorsing the concept of so-called premium support, Wyden says he doesn’t favor the program in Ryan’s budget.

‘Talking Nonsense’

That didn’t stop Romney, a former Massachusetts governor, from claiming the plan had bipartisan support.

“This man said I’m going to find Democrats to work with -- find a Democrat to co-lead a piece of legislation to make sure we can save Medicare, Republicans and Democrats coming together,” Romney said on Aug. 11 in Ashland, Virginia, as he campaigned with Ryan.

Governor Romney is talking nonsense,” Wyden responded in a statement. Said Wyden, “Several months after the paper came out I spoke and voted against the Medicare provisions in the Ryan budget.”

Democrats have lined up against the plan because they say seniors will end up shouldering bigger health-care bills, forgoing care or both. The nonpartisan Congressional Budget Office said the original version of Ryan’s plan would have increased costs for seniors because his vouchers would not keep pace with health-care prices. His latest version, with the option of remaining in the current program, is so complicated the agency said it can’t predict what might happen.

Unfair Comparison

“CBO does not have the capability at this time to estimate such effects,” the agency said in a March report, though it said possible consequences include reduced access to care.

Ryan has said it’s unfair to compare his proposal to the current Medicare plan because the program is growing so quickly that it will inevitably be pared back. Medicare, now the government’s third-biggest program behind Social Security and defense spending, is projected to double in size over the next decade as retiring baby boomers swell its rolls. By 2022, annual costs will run to $1 trillion, according to the CBO.

Also, Ryan’s plan would be phased in slowly. It wouldn’t affect current beneficiaries or those approaching retirement. Only those turning 65 years old in 2023 or later would be affected. The changes are so slow the Medicare cuts comprise only $200 billion of the $5 trillion in total budget reductions Ryan proposes over the first decade of his plan.

Medicare Savings

“What Paul Ryan and I have talked about is saving Medicare, is providing people greater choice in Medicare, making sure it’s there for current seniors,” Romney told CBS in an interview taped for the “60 Minutes” program that aired last night. “No changes, by the way, for current seniors, or those nearing retirement. But looking for young people down the road and saying, ‘We’re going to give you a bigger choice.’”

There’s some disagreement between Romney and his running mate, however, over what to do about savings that can be realized from the 47-year-old federal program.

Romney wants to repeal all of Obama’s health-care overhaul, including some $500 billion in Medicare cuts in the 2010 law. Ryan favors scrapping it, too, though he wants to keep those spending reductions to help shore up Medicare over the long term. Romney also hasn’t proposed capping overall Medicare spending, a BGOV analysis shows.

Democrats and Republicans do agree on some aspects of the issue, beginning with the need to put Medicare on a budget. The Obama health-care law established a board of experts who will be charged with wringing savings out of the program if costs exceed a certain threshold. The administration’s threshold happens to be the same level as in Ryan’s plan -- .5 percent more than growth in the gross domestic product.

‘Piece of Rhetoric’

Ryan’s backers say the difference is that Obama wants a panel of government-appointed experts to take the lead in making cuts, while the lawmaker wants competition among private firms, coupled with greater consumer discretion, to rein in costs.

“This notion that somehow Ryan’s uniquely starving Medicare is a piece of rhetoric that is just wrong,” said former Congressional Budget Office Director Douglas Holtz-Eakin, who advised 2008 Republican presidential nominee John McCain. “The total spending is the same under both proposals, and the only difference is how you get there.”

Still, there’s reason for skepticism that private insurers will produce much in the way of savings.

No Advantage

The government already runs a program, called Medicare Advantage, in which the elderly can choose to receive health coverage from plans offered by private insurers. About a quarter of Medicare beneficiaries chose Advantage plans in 2011, according to the Medicare Payment Advisory Commission, or MedPAC, which advises Congress on the program.

“I don’t believe the evidence suggests it has saved a lot of money by having competition,” said Harvard University health policy Professor Robert Blendon. In fact, MedPAC says the government will pay Advantage plans about 107 percent of the cost of traditional Medicare in 2012.

To contact the reporter on this story: Brian Faler in Washington at Or bfaler@bloomberg.net

To contact the editor responsible for this story: Jeanne Cummings at jcummings21@bloomberg.net

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