James C. Capretta
First published 5/2/11 on Kaiser Health News
It should be obvious by now that the president of the United States and his political allies are hoping to ride demonization of House Budget Committee Chairman Paul Ryan’s Medicare reform proposal all the way to electoral victory in November 2012.
Following the president’s April 13 campaign-style budget speech, in which he aimed his most intense partisan fire at the Ryan Medicare plan, the entire Democratic political machine has taken the cue and gotten cranked up. In recent days, the party’s campaign committees began running attack ads against the Ryan plan — a full year and a half before the next election. Professional agitators have been rounded up to heckle members of Congress in their districts. And a legion of administration apologists has filled the blogosphere and newspaper opinion pages with outrage — outrage! — at the “cruelty” of the Ryan plan.
Never mind that the nation is rushing headlong toward a debt-induced economic crisis — an enormous risk that the president should be doing everything he can to avoid. It is simply too tempting to pass up a golden opportunity to again (it’s a perennial) accuse Republicans of forcing poor seniors to choose between food and medicine, even if it means increasing the risk of an economic meltdown. It’s no accident that Standard and Poor’s listened to the president’s speech and promptly issued a warning about the long-term creditworthiness of Treasury securities. They heard what everybody else heard, which is that the president wants to politicize the budget debate for electoral advantage instead of working with his adversaries to come up with a solution.
The primary source of the nation’s pressing budgetary problem is mounting entitlement costs. Between 1971 and 2010, spending on Social Security, Medicare and Medicaid rose from 4.3 percent of the gross domestic product to 10.3 percent of GDP. That jump in spending — 6 percent of GDP– is more than the country is spending today on the entire defense department. And it’s about to get much worse. Over the next two decades, spending on these programs is set to soar with the retirement of the baby boom generation and rapidly rising health costs. Leaving these programs on autopilot for another decade, or just tinkering around their edges, is a recipe for economic ruin. It is imperative to get serious, and soon, about rewriting the rules of these programs to ensure they are viable for the next generation. And yet it is plain that leaders of the Democratic Party continue to believe, as they have for many years, that their surest route to electoral success is a no-compromise defense of the entitlement status quo.
Which brings us back to the Medicare plan advanced by Ryan, a Republican from Wisconsin. To hear opponents tell it, it’s a “radical” proposal. But is it?
Beginning in 2022, new program entrants (those under age 55 today) would get their entitlement in the form of “premium support credits.” Today’s Medicare enrollees and those who enter the program over the next decade would be entirely exempt from this reform — an important piece of information that seems to have gotten lost in all of the shouting. Those receiving the credits would get to apply them to one of several competing private insurance plans. The federal government would oversee the plan choices, ensuring they meet standards for quality and accessibility of care. Low-income Medicare participants would get extra financial support to cover additional out-of-pocket expenses. In the years after 2022, the federally-financed “premium support credits” would rise commensurate with the consumer price index.
Premium credits for program participants. Competing private insurance options. Government oversight of plan choices. Additional help for the low-income.
If this all sounds vaguely familiar, it should. It’s the description used by advocates to sellthe president’s own health reform program to the American people.
Moreover, these reforms are very similar to the ones enacted in 2003 to provide prescription drugs to today’s seniors. That benefit is delivered entirely by competing private insurers. Seniors get a fixed government contribution toward their coverage. If they select relatively expensive options, they pay a higher premium. If they select a less expensive option, their premiums are lower. At the time of enactment, opponents said this approach would never work. Costs would soar. Seniors wouldn’t enroll. Insurers would stay away. All dead wrong. Competition has been robust. Seniors have signed up in droves with low-premium plans that push cost-effective generic substitution, and they like the program. Costs have come in 41 percent below expectations. This is the model for fixing the rest of Medicare too, and the basis for the Ryan reform.
Ryan’s critics have focused particular attention on his plan’s indexation of the Medicare “premium support credits” to the CPI in the years after 2022, suggesting that this idea is somehow beyond the pale. But this is sheer hypocrisy on their part because the indexing of government-financed premium credits below cost growth is in the president’’ plan too, and yet not a complaint has been heard about that from its advocates. That’s right. After 2018, if the aggregate governmental cost of premium credits and cost-sharing subsidies provided in the state-run exchanges exceeds about 0.5 percent of GDP (a condition that the Congressional Budget Office says will be met), the recently-enacted health law requires the government’s per capita contribution to health plan premiums in the exchanges to rise more slowly than premiums. The administration actuaries interpret the law to mean that the government’s contributions toward coverage will rise with GDP growth after 2018. CBO appears to have a different interpretation. Still, under all interpretations and projections, it’s clear that the exchange credits in the new law will not keep pace with expectations of rising health costs. And that’s exactly what the president is now saying is so wrong with Ryan’s Medicare plan.
Critics contend that the Ryan plan would shift huge new costs onto Medicare beneficiaries for reasons beyond the indexing of the credits, and they cite CBO’s analysis of the Ryan budget as proof. But this analysis is based on two flawed assumptions. First, it assumes that traditional Medicare can keep cutting what it pays to hospitals and doctors with no consequences whatsoever for the beneficiaries. CBO’s assessment is that in 2022 traditional Medicare could provide the insurance benefit for just 66 percent of what a private insurance plan would cost. This is sheer folly based entirely on deep payment reductions for services. If those cuts really were to go into effect as scheduled, Medicare rates would be well below those of Medicaid, and seniors would have very restricted access to care. CBO’s analysis also assumes no savings from establishing rigorous competition in the Medicare program. But the cost-cutting in the prescription drug program demonstrates that the potential is there for massive savings from a functioning marketplace.
Last week, the president said the country has serious issues to address. He’s right. One of the biggest is the budget challenge. Unfortunately, the president’s carefully orchestrated attack on the Ryan plan has made it much less likely that real progress will be made before 2013 to address the problem. That means the country remains at substantial risk that a debt crisis will hit before political leaders have acted. And if it does, it’s the president who will rightly take the blame.
James Capretta is a Fellow at the Ethics and Public Policy Center. He served as an associate director at the White House Office of Management and Budget from 2001 to 2004.