May 20 (Bloomberg) -- Love it or hate it, Medicare is driving itself and our country broke. The president’s proposed policy and that of Paul Ryan, the House Budget Committee chairman, are viewed as miles apart. The reality is different. And the silly name-calling is obscuring their considerable common ground. It’s even confusing a major presidential candidate.
President Barack Obama is relying on a special panel, to be formed in 2014, to get Congress to cut payments to doctors and hospitals, keeping the national health-insurance program for the elderly solvent.
If Congress succeeds, older Americans would end up paying a larger share of their health-care costs via the Medicare Part B premium, which is deducted from one’s Social Security check using a complicated progressive formula that isn’t indexed for inflation. The elderly would also pay, if they can afford it, more for supplemental policies that cover what Medicare increasingly doesn’t.
Ryan wants to give Medicare participants money to buy a basic health-care policy, with the amount of money dependent on their pre-existing conditions and with the proviso that no one can be turned down. A panel would decide what the basic policy covers.
Older Americans who can afford it would buy supplemental policies to cover what the basic plan doesn’t. As with the president’s plan, the elderly would likely pay a larger share of their health-care costs over time.
Both visions for Medicare limit the spending growth in government-paid old-age health care. But Ryan’s plan has a more transparent and reliable means of doing so. Under Medicare’s current fee-for-service structure, the elderly and their doctors order services and the government pays the fees. Yes, the fees are set by the government, but the medical system can generate more income, even at lower fees per service, simply by ordering up more services.
Ryan’s plan is different. It defines the government’s contribution to Medicare as the sum of the voucher payments -- and that’s it. The government’s liability is capped.
Ryan’s plan is more progressive than the president’s because the poor are, on average, sicker than the rich and will receive, on average, larger vouchers. And his plan, as I understand it, would retain Medicare’s progressive premium formula.
Ryan’s plan has been criticized for letting today’s elderly stay in the old system, while future retirees wouldn’t enjoy the same increases in benefits. His plan should be modified to include today’s elderly and to keep Medicare expanding at the right rate -- namely, the growth rate of the economy. One just sets the voucher budget each year as a fixed share of gross domestic product.
The president also doubts the role of insurance companies in Ryan’s plan. Ryan’s plan encourages competition among insurers, which would supply the same basic health-care coverage set by a government panel. The insurance companies would be regulated, earn modest profits, and be insulated from congressional meddling when the public starts lobbying for more medical services than the country can afford.
Today’s system also features insurance companies, albeit a single one called Medicare. The president wants to keep our single insurance company and get it to simply reject bills that are too high. Ryan’s plan scores more points here as well.
Not Far Apart
Given that Obama’s and Ryan’s plans aren’t that far apart, what can be done to make a marriage?
They need to agree first on the share of GDP to be spent on Medicare each year, and then to find an efficient, progressive and foolproof way to make those and only those expenditures. I think Ryan should give on the Medicare-to-GDP spending share and Obama should go for Ryan’s mechanism, which, incidentally, is the same one used in the president’s health-exchange system.
Getting these grownups to play nice may be impossible, especially after Obama criticized the Ryan plan because it relies on “privatization” and “vouchers,” as if that’s a dirty word.
In fact, the current Medicare system provides a voucher in the form of a Medicare card entitling one to health care subsidized by the government. Ryan’s plan doesn’t actually use the V word, but it too provides a right for participants to buy health care subsidized by the government.
The big difference is that the current system’s voucher is open-ended, whereas Ryan’s is capped. But the president wants to have his panel fix what his voucher will cover and pay. So it too is capped. As for privatization, both the current system and Ryan’s plan rely on private companies to provide health care.
To make matters murkier, presidential candidate Newt Gingrich has jumped into the fray, calling the current system “left-wing social engineering” and Ryan’s plan “right-wing social engineering.” I guess a Democratic open-ended voucher that would be limited by a panel in what it can buy is left wing, and a Republican voucher that pays for a fixed set of basic health-care services is right wing. Glad Gingrich sorted out the essence of our political differences.
But Gingrich did let slip one thing that made sense. In the process of castigating social engineering, he endorsed it by saying that people must be forced to buy or simply be given health insurance so they don’t free-ride on society.
Since then, Gingrich has said he is in favor of Ryan’s plan, no longer supports health-care mandates, and is “glad to answer any Democrat who attempts to distort what I said.”
That’s a tough assignment, given that Gingrich seems to have no idea what he said and less idea what he meant.
Our politicians’ childish word games would all be great fun were the nation’s solvency and our economy’s future not hanging in the balance.
(Laurence Kotlikoff is a professor of economics at Boston University, and is the author of thepurplehealthplan.org. The opinions expressed are his own.)
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