Paul Ryan's Plan: Better for Seniors than Obama's

How much of a difference is there between Paul Ryan’s Medicare plan and Barack Obama’s? As Yuval Levin points out in National Review, there’s plenty of difference.

And that difference matters; even the Congressional Budget Office admits that, by 2035, Medicare costs will reach a point where they constitute twice as much as a share of the economy as they do today, while all other federal spending will decline as a share of the economy. If the Medicare problem is simply kicked down the road, the economy is doomed.

So how do the two plans differ? Ryan’s plan is a combination of two different systems. The first is the “defined benefits” system, where the government decides how much benefits should be, and then pays health-care providers a price the government deems fair for providing each of those covered services.  The second is the “defined contribution” system, where the government decides on how much to provide to beneficiaries but then lets them use that money to choose from an approved set of competing private insurance plans. That system encourages competition, because insurance providers fight to keep their customers and the subsequent Medicare dollars.

The Obama minions insist that the new plan would put seniors at risk, because the vouchers Ryan would offer couldn’t keep up with health care costs and thus seniors would have to use their own money; some would not be able to afford it. But Ryan’s plan offers a solution to address that very problem. The federal government would still define the required benefits that would constitute comprehensive insurance coverage, just as today. But in addition, each year private insurers as well as a federal fee-for-service insurance provider would submit bids to the government to provide that same coverage at the lowest cost they could charge. Seniors would then obtain from the federal government a premium-support payment equal to the second-lowest bid offered overall.  That way, every senior would be guaranteed to have at least one comprehensive coverage option but would also have other, more expensive options he could choose – either because there were ancillary benefits not required, or because the offering companies were not as efficient.

The market, not the bureaucrats at Medicare, would set the level of the premium-support payment. Seniors who wanted something less than the premium-support payment would pocket the difference; it would be placed in a tax-free health savings account to be kept for future health costs. If the seniors were poorer, older, or more ill, their premium-support payment would be higher.

The new plan would compensate for the inadequacies of present Medicare with a vengeance. First, the open-ended spending of the present system would end, but the guarantee of a comprehensive insurance benefit would still be in place. Second, the defined-contribution loopholes by which a gap could widen between dollars received and the cost of benefits would be addressed by the fact that, every year, the amount calculated for the federal payment would be set anew. If health-care costs decreased, then the premium amount would down commensurately.

There is strong evidence that by championing competition, costs of Medicare would drop. On August 1 of this year, three Harvard researchers published a study in the New England Journal of Medicine that delineated what Ryan’s plan would have achieved if it had been adopted in 2009. They said, “nationally, in 2009, the benchmark plan under the Ryan-Wyden framework (i.e., the second-lowest plan) bid an average of 9% below traditional Medicare costs (traditional Medicare was equivalent to approximately the tenth-lowest bid).” That means that, even with the present system, with Medicare’s lack of competition, Ryan’s plan would still have reduced per-beneficiary spending by nine percent, while seniors would get the same insurance coverage.

And there’s another aspect to the Ryan plan: a requirement that Medicare’s growth not be faster than 0.5 percent more than GDP growth per year, which is the same as Obama’s budget. What this means is that both plans set a limit on the maximum growth rate, but Ryan’s allows for competition beneath that rate, which would lower costs.

When Obama and his campaign frighten seniors by claiming that Ryan wants to take their Medicare away, they are lying; Ryan’s plan would only begin ten years in the future, and only affect new entrants into Medicare, so everyone over 55 would be left untouched for the rest of their lives.

Obama campaign manager Jim Messina said that Ryan’s Medicare plan would “end Medicare as we know it by turning it into a voucher system, shifting thousands of dollars in health care costs to seniors.” Some Democrats estimated the additional cost to be $6,400. But they got that figure from a CBO calculation regarding a previous version of the premium-support idea, not Ryan’s plan. Messina is lying.

Meanwhile, ObamaCare cuts Medicare by $700 billion over its first ten years to fund other programs and actually discourages competition by having a board of price controllers, the Independent Payment Advisory Board (IPAB), decide how much payments to providers should be, thus driving insurance companies out of business. This would restrict the options of seniors in choosing health care for themselves.

If anyone threatens health care for seniors, it’s Obama. ObamaCare will crush the competitive opportunity for lower costs while draining Medicare of funds it badly needs. There simply is no rational way to argue that Obama is more compassionate than Ryan. Ryan’s plan brings costs down while maintaining access for seniors to premium health care. Obama’s plan will leave seniors grasping at straws and eviscerate the American economy.