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Change We Can Believe In

Nov 29, 2010, Vol. 16, No. 11 • By YUVAL LEVIN
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Technically speaking, the National Commission on Fiscal Responsibility and Reform seems headed toward failure. The commission, chaired by Democrat Erskine Bowles and Republican Alan Simpson, is required to produce a report by December 1 providing recommendations for reducing the deficit and debt. To be adopted as a recommendation of the commission, a proposal must win the votes of 14 of the body’s 18 members. It now looks increasingly unlikely that any proposal will reach that threshold.

Change We Can Believe In

But, in an effort to avoid simply declaring defeat, a number of members have offered their own ideas in recent weeks. And several of these ideas have been quite promising.

On November 10, the two co-chairmen released a comprehensive proposal that would significantly reduce the deficit and debt. Although it suffered from some major flaws—most notably a failure to deal with health care costs, an excessive overall tax burden, and badly misguided cuts in the defense budget—the Bowles-Simpson proposal offered many good and bold ideas, including sensible reforms of Social Security, cuts to discretionary spending, and improvements of the tax code. The chairmen’s draft could serve as a plausible starting position for the Obama administration in negotiations with Republicans, from which the president would need to move rightward on some key issues.

Even more significant, however, was a proposal released last week by Alice Rivlin, a Democrat and former budget director under Bill Clinton, and Rep. Paul Ryan of Wisconsin, the next chairman of the House Budget Committee. Rivlin and Ryan took up the subject on which the chairmen punted—our exploding health care entitlements.

Their proposal is extraordinarily bold and well-crafted. Rivlin and Ryan would leave the benefits of today’s retirees and near-retirees alone. But for people who are now 55 and younger, Rivlin and Ryan would transform Medicare from a program that directly pays for care in an open-ended way to one that provides retirees with money to buy private health insurance on their own. The amount provided would be based on “average annual per capita expenditures in 2021.” It would grow much more slowly than Medicare spending grows today. And it would be adjusted by income, geography, and health risks—so that those who need more help can get it. The poorest seniors would also get additional help to pay out-of-pocket costs.

Meanwhile, starting in 2013, Rivlin and Ryan would transform the federal share of the Medicaid program into a block grant to the states—the amount of which would be determined by each state’s poor population, and again would grow much more slowly than Medicaid spending has been growing lately.

These two changes would transform our massive, open-ended health care entitlements into powerful means of cost containment, while allowing individuals more control over their coverage and care, and giving states more say over their budgets. In one fell swoop, the Rivlin-Ryan proposals would turn Medicare and Medicaid from a major source of the problem into the beginning of a solution to our debt crisis.

And they would also do what Obamacare completely fails to do: reduce health care costs and, as the wonks put it, actually “bend the cost curve downward.” The Congressional Budget Office reports that, in its first ten years (that is, before the Medicare reform even begins), the Rivlin-Ryan proposal would reduce the deficit by more than a quarter of a trillion dollars. And once the reforms are fully in place, the savings would be immense. By 2050, according to the CBO, federal health care entitlements would account for only 10 percent of GDP, rather than the nearly 14 percent projected under today’s policies.

The Rivlin-Ryan plan, moreover, explicitly proposes to repeal one of the more costly elements of Obamacare—a new long-term care entitlement. Even more important, it implicitly offers an excellent alternative to the entire approach of the Democratic health care law. The model Rivlin-Ryan propose for Medicare—a means-tested, pre-defined subsidy for the purchase of private insurance—ought to be the basis for a broader reform that replaces Obamacare and transforms today’s tax exclusion for employer-based coverage into a tax credit for health insurance for all (as, indeed, Rep. Ryan has proposed to do).

The Rivlin-Ryan model is what a sustainable, rational safety net looks like, and is just the kind of sober and creative solution to our fiscal crisis that voters were screaming for earlier this month. Let us hope that this bipartisan proposal is a sign of things to come.

—Yuval Levin

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