May 30, 2011, Vol. 16, No. 35 • By YUVAL LEVIN
Do House Republicans want to kill the elderly? If you listen to the left these days, you’d certainly think so. Last week, a liberal advocacy group called “The Agenda Project”—which claims to advance “rational, effective ideas in the public debate”—released an ad showing a look-alike of House Budget Committee chairman Paul Ryan pushing an old woman in a wheelchair off a cliff. “Is America beautiful without Medicare?” the ad inquires of viewers. “Ask Paul Ryan and his friends in Congress.”
Nor is it only rabid interest groups that have succumbed to such appeals. Kathleen Sebelius, secretary of health and human services, said more or less the same thing earlier this month. When asked about the House Republican budget’s approach to Medicare, Sebelius said that, under the plan, “If you run out of the government voucher and then you run out of your own money, you’re left to scrape together charity care, go without care, die sooner. There really aren’t a lot of options.”
The president himself has come pretty close to this view. The Republican budget, Obama said in a speech at George Washington University last month, “says instead of guaranteed health care, you will get a voucher. And if that voucher isn’t worth enough to buy the insurance that’s available in the open marketplace, well, tough luck—you’re on your own. Put simply, it ends Medicare as we know it.”
Clearly, the GOP Medicare reform has struck a nerve. Democrats have focused on that part of the budget above all others. Aware that it would represent the most significant conservative policy innovation since the welfare reform of the mid-1990s, and persuaded that it will prove unpopular with seniors, liberals are intent on making political hay of the Medicare proposal while preventing its enactment. And yet, for all that they believe the Ryan plan is a Republican vulnerability, Democrats seem unwilling to speak about it honestly. Maybe they know that the facts do not support their case.
Let’s start with “Medicare as we know it.” According to the Congressional Budget Office and Medicare’s trustees, the program has a long-term unfunded liability of more than $30 trillion. It’s about a decade from insolvency. The trustees’ latest annual report, released on May 13, notes that the Medicare trust fund is projected to run out of money five years sooner than was projected last year. Its current trajectory would swallow up the federal budget. Taxes could not be raised high or fast enough to keep up with its growth without crushing the economy. “Medicare as we know it” is not an option. Leaving Medicare alone means it simply won’t be there for future seniors. The question is how to reform the program in order to save it.
The Democrats cannot deny the figures, but their solution is to let the crisis come. President Obama’s budget offered nothing beyond Obamacare as a solution. Of course, the effects of Obamacare are already accounted for in the latest actuarial projections, since Obamacare is current law. Indeed, in an extraordinary letter affixed to the recent trustees’ report, Medicare’s chief actuary noted that Obamacare’s approach to the program—price controls determined by a board of experts and devoid of market-based reforms that could help health care providers improve their efficiency—would actually exacerbate Medicare’s troubles.
The Republican budget offers precisely such market-based reforms. It proposes not just to reduce the growth rate of Medicare spending, but to introduce consumer pressures into the system that would create financial incentives for providers to work more efficiently and reduce the growth of the health care costs that are at the heart of the problem.
Right now, Medicare pays all providers the same price for a given service—regardless of quality, efficiency, outcome, the cost to the provider, or patient satisfaction. Medicare recipients play no part in determining who gets paid and how much, and have no sense of what their health care costs. Providers have no financial incentive to deliver better care at lower prices. And price controls that would reduce what Medicare pays per service (the Obamacare solution) would only create an incentive for providers to supply a greater volume of services to make up the difference. That is exactly what price controls have done in the past—drive efficiency down and costs up.
The House Republican proposal would change Medicare’s counterproductive design. It would leave today’s seniors and those now 55 or older in the current system, since they have planned their retirements around it. But everyone younger than that would join a redesigned Medicare when they retire. Rather than pay all providers a set fee directly, seniors would use the money (in the form of a premium support payment that would start at current Medicare rates and grow with inflation) to choose insurance plans from a menu of guaranteed private coverage options. Poor seniors and those in the worst health would get significantly greater support, while the wealthiest would receive less. And seniors would be buying guaranteed insurance with limits on out of pocket costs, not paying directly for care. Sebelius’s notion that they would simply “run out” of money if they got sick is nothing more than fear-mongering.
Insurers and providers would compete for seniors’ dollars. They would be free to find innovative ways to offer better quality at lower costs. That’s how markets produce efficiency: by letting sellers find ways to offer buyers what they want at prices they want to pay.
Everyone agrees that such efficiency improvements are essential. As Ryan has put it, the basic choice offered by the parties’ competing approaches to Medicare has to do with how efficiency is achieved. It’s a choice between giving a board of experts the power to deny care to seniors based on its magisterial judgment of quality and value, and giving seniors the power to deny business to providers based on their individual opinions and priorities.
In principle, therefore, this is a choice between markets and central planning, which should no longer be hard to make. In practice, it is a choice between modernizing Medicare to allow it to continue providing seniors with health security in retirement and letting the program collapse under its own weight.
For politicians, it is also a choice between reforming a program that seniors are comfortable with and leaving it alone despite its fatal problems. Republicans have chosen to deal with that difficulty by leaving current seniors with all the benefits they are accustomed to in the current program and reforming it for the next generation. Democrats have chosen to deal with it by pretending there is no problem, falsely insisting that any reform will harm today’s seniors, and leaving a colossal disaster for the next generation. Republicans, in other words, have chosen a policy solution that carries political risk while the Democrats have opted for political advantage.
The Ryan budget’s particular approach, of course, is not the only possible way to address Medicare’s woes. There is plenty of room to debate alternative solutions. But any effective solution would have to harness market forces to improve the efficiency of our health care system and give seniors more choices.
Unfortunately, the Democrats have opted for no solution at all. That doesn’t mean President Obama wants to kill the elderly. But his cynical complaisance and demagoguery do risk killing Medicare, and doing grave damage to the budget and the economy along the way.
Recent Blog Posts