August 13 2012

Medicare - A Choice of Two Futures

Hadley Heath

Over the course of the next four months, we are sure to hear more about the “Ryan Plan” to reform Medicare.  Liberals – along with the mainstream media – will be quick to demagogue the Medicare debate and allege that Ryan’s proposals will be harmful to seniors.

We can and should have an honest debate about the future of Medicare, especially because the program as currently structured is in serious trouble.  Both parties agree reform is necessary.  The program faces trillions of dollars in unfunded liabilities (that is, the program is expected to owe trillions more than it will take in).  That’s no mystery given that the average working couple pays $140,000 into Medicare over their lives… and receives three times that amount in benefits.

But we can’t have an honest debate about Medicare unless we clearly define the choice between the current trajectory – President Obama’s IPAB plan in the “Affordable Care Act” (ObamaCare) – and alternative ideas offered by others, most importantly Paul Ryan’s ideas.

On top of the downright lies circulating about Ryan’s proposals, there may be some genuine confusion because the Congressman has put forward at least three different plans: The original “Path to Prosperity,” the Rivlin-Ryan plan (which he worked on with Democratic, Clinton-era OMB director Alice Rivlin), and the Wyden-Ryan plan (co-sponsored by Democratic Sen. Ron Wyden and endorsed by Mitt Romney).

To keep things simple, we should focus on the Wyden-Ryan plan, since Romney says it is identical to what he would do, and is most likely to become law (should Romney be elected).

How much do the plans cut?

Cuts are necessary to deal with the program’s budget crisis.  Both plans propose big cuts: President Obama’s plan includes $716 billions of dollars in cuts to Medicare between 2013 and 2022, according to the Congressional Budget Office.  In the long run, the formula that Obama’s plan uses to cap Medicare spending is an average of CPI-U, CPI-U medical care, and GDP+1 percent.  Using figures from 2006-2010 as an example, this number would be around 3.5 percent.

The Wyden-Ryan plan hasn’t been officially scored by the CBO, but it is likely that the dollar amount for cuts will be similar, although not as deep, as in the President’s plan.  Why?  Because Wyden-Ryan uses a similar formula to cap growth in Medicare spending: GDP+0.5 percent.  Again, using numbers from 2006-2010, this number would be around 3.9 percent.  But of course, this number, along with the IPAB formula, depend on economic indicators and are subject to change. (Interestingly, in his budget proposals, President Obama has suggested capping Medicare spending at exactly the same level - GDP+0.5 percent - but his budgets have not been passed by Congress).

In his earlier “Path to Prosperity” plan, Ryan suggested capping Medicare spending at the rate of inflation.  This brought criticism from the Left  – including comedians like Jon Stewart – for being too low, but any criticism shouldn’t compare Ryan’s proposals to current Medicare spending, but to the future cuts that will be imposed by the IPAB.

The Wyden-Ryan plan and the President’s IPAB plan do not differ greatly in the dollar amounts that will be cut, at least not according to the cap on Medicare spending.  Ryan's camp suggests that the introduction of competitive bidding to Medicare could result in more savings, but that is difficult to project (and the CBO has not attempted to analyze this).

Who would be affected under each plan?

This is huge: Paul Ryan has never proposed any plan that would make cuts to Medicare for anyone over the age of 55.  The changes he suggests would only impact people under the age of 55. On the other hand, the IPAB will make their first round of cuts in 2014, and those cuts will impact people who are currently on Medicare.

How do the plans make their cuts?

President Obama’s plan creates a 15-member board, called the Independent Payment Advisory Board, who will be appointed by the President and will serve 6-year terms putting together cost-cutting recommendations for Medicare each year.  These “recommendations” automatically become law unless a supermajority in both houses of Congress votes to stop the IPAB proposal, and in that case Congress will have to come up with the cuts themselves, following the same formula IPAB must follow.  In other words, a small government board will be making decisions about where to allot resources in Medicare.

On the other hand, the Wyden-Ryan plan would increase options for Medicare beneficiaries by offering for them to either 1) stay on the current Medicare fee-for-service plan or 2) opt into an exchange where they can choose their own insurance plan and pay for it with a voucher.  This would benefit all Medicare beneficiaries (both in the traditional program and the new exchange) by introducing an element of competition for seniors’ business.  Struggling, sicker seniors would receive more financial assistance, while healthier, wealthier seniors would receive less. The plan does NOT privative Medicare.  It doesn’t even come close.

In his first Path to Prosperity plan, Ryan suggested giving all seniors a voucher and allowing them to buy Medicare-approved plans in the private market.  This again brought criticism from the Left.  In reaction, Ryan has evolved his plan, consistently reaching across the aisle to work with Democrats to find solutions that are viable.  That – especially in today’s heated environment – is commendable.

Ryan is fond of saying America has a “choice of two futures.”  That’s definitely the case in Medicare.  But this issue represents a larger debate in public policy: Who should be in charge – the government or individuals?  The choice Americans make will probably depend on their ability to hear and understand the truth behind the plans that have been offered.  Enough demagoguery – let’s have an honest debate!

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