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The Independent Institute
Commentary

Medicare Wars


How much difference is there between the Ryan budget and the Obama budget with respect to Medicare? By now most of the health care media has caught on: there is no important difference in Medicare spending—even when the estimates of the president’s budget are made by his own Office of Management and Budget and the Ryan plan is projected by Ryan himself. As Tom Saving and I explained the other day, there are a lot of other similarities as well.

Much has been made of the fact that Paul Ryan would create “vouchers,” allowing seniors to buy private insurance. To hear the critics tell it, this would radically transform Medicare by “privatizing” it. But we already have a voucher program under Medicare. It’s called Medicare Part C, or the Medicare Advantage program. One out of four beneficiaries has taken advantage of it to enroll in the same kind of health insurance plans non-seniors typically have.

President Obama has long favored reducing the payments to these plans and significant cuts are part of the Affordable Care Act (ObamaCare). However, neither the president nor any other prominent Democrat is calling for the abolition of these very popular plans. To the contrary. The administration is busily shoring them up with “bonus payments,” fearful that a significant number of plans leaving the market would anger elderly voters.

Although Paul Ryan clearly favors an expansion of private Medicare plans, his budget implicitly endorses the very same cuts in payments to them that are incorporated in current law. He would replace the current byzantine way of funding these plans with a much more efficient system of “competitive bidding,” but this is unlikely to cause partisan disagreement.

One new idea in the Ryan plan is to eventually increase the age of eligibility from 65 years old to 67 years old. But since the president has signaled a willingness to do the same thing in budget negotiations with Republicans, it’s hard to make too much of this.

In the original Ryan budget, all seniors would have enrolled in private plans. However, in the latest version, everyone will have the option of remaining in the traditional Medicare program, just as they do today. So regardless of how much the private plans are paid, total spending won’t be controlled unless there is a way to control traditional Medicare’s costs. How would Ryan do that?

We know how spending will be curtailed under the president’s approach. Under the 2010 heath reform law, the first line of attack will be demonstration projects and pilot programs that point the way to more efficient ways of delivering care. Unfortunately, three separate Congressional Budget Office reports have concluded that the demonstration projects are either not working or are producing lackluster results. If efficiencies cannot be found, the fallback mechanism under the law is to limit the growth of payments to providers.

Here’s the problem with that. As the most recent Medicare Trustees’ report points out, Medicare payments to physicians are 80 percent of what private insurers pay and they will fall to 40 percent over the next two decades. Medicare hospital fees are less than 70 percent of the amounts paid by private insurers, and this percentage will also decline over time. The Medicare actuaries predict that one in seven hospitals will not survive these cuts over the next eight years and seniors will have increasing difficulty finding doctors who will see them.

This is where the advantage goes to Ryan. If something in the Democratic approach actually works, Ryan is free to adopt it as part of his approach. But he is not locked into it. In an article in Health Affairs Saving and I proposed a number of ways Medicare spending could be curtailed without squeezing doctors and hospitals. These include allowing seniors to pay the market price for their services at walk-in clinics and other retail health care outlets. We also proposed allowing seniors to manage more of their own health care dollars through Health Savings Accounts.

The Ryan approach at least has the possibility of making the slower growth of Medicare less painful by turning to market-based reforms rather than suppressing provider fees.


John C. Goodman is a Senior Fellow at the Independent Institute and author of the award-winning and widely acclaimed Institute book, Priceless: Curing the Healthcare Crisis. The Wall Street Journal and the National Journal, among other media, have called him the “Father of Health Savings Accounts.”


New from John C. Goodman!
PRICELESS: Curing the Healthcare Crisis
To cure the ailments of American healthcare we must get rid of the perverse incentives that raise costs, reduce quality, and make care hard to access. We must allow a free-market price system to emerge, so that the laws of supply and demand will work to the benefit of patients and providers alike.