Why Ryan-Rivlin Would Work (and Obamacare Won’t)

At National Review, Jim Capretta explains why the Ryan-Rivlin plan would reform entitlements and bend the health care cost-curve down, while Obamacare would do neither. Actually, Obamacare would do far worse than "neither." It would add an unsustainable new entitlement while also bending the nationwide cost-curve up.

The Ryan-Rivlin plan has been advanced by Rep. Paul Ryan (R., Wis.), the articulate and likable House Budget Committee chairman who consistently manages to sell conservative principles to a congressional district that looks a lot like a microcosm of the United States (the district voted for President Obama), and Alice Rivlin, director of the Congressional Budget Office (CBO) during parts of the Ford, Carter, and Reagan presidencies and director of the Office of Management and Budget under President Clinton. Unlike Obamacare, Ryan-Rivlin represents a bipartisan approach, advanced by two fiscal conservatives.

Why would it work, while Obamacare wouldn't work at all? Capretta writes,

Bending the cost curve is not a matter of simply paying less for a service. What’s needed is real and continuous productivity improvement in the health sector: doctors, hospitals, nursing homes, labs, clinics, and others finding better ways to deliver higher-quality care at less cost....

Providers of medical services aren’t going to take payments for services that don’t cover what it costs to care for patients. As Richard Foster, the chief actuary of the Medicare program, has repeatedly warned, Obamacare’s cuts would drive Medicare’s average payment rates so low that they would fall below those of Medicaid by the end of the decade. And Medicaid’s rates are already so low that the network of physicians and hospitals willing to take care of large numbers of Medicaid patients is notoriously constrained.

The Ryan-Rivlin plan is entirely different because it is based on empowering consumers to find the best value possible for their defined-contribution payment. This is the way to unleash a productivity revolution in health care. The administration says it wants everyone to have access to low-cost, high-quality models, such as the Geisinger Health Plan. The way to bring that about is with a dynamic consumer marketplace in which those kinds of plans are rewarded financially for being more efficient and of higher quality. And the way to bring that about is by giving people the control and financial incentive to become active, cost-conscious consumers both of the insurance they select and the delivery system by which they get their care. And that’s exactly what would happen under Ryan-Rivlin, which is why it would work and Obamacare wouldn’t.

Under Ryan-Rivlin, once people currently under the age of 55 enroll in Medicare, they would receive a voucher (based on current average per-person Medicare expenses and adjusted based on income, geography, and health risks) for use in purchasing private health insurance of their choosing. The amount of the voucher would increase each year, by more than inflation. The plan would protect Medicare beneficiaries (including those enrolled in the current program or slated to enroll within the next decade) by capping their annual out-of-pocket expenses at $6,000, starting in 2013. The poor would receive $6,000 in taxpayer subsidies to put into a Health Savings Account (plus an extra $600).  

Using its mid-range estimates, the CBO says that, by 2030, Ryan-Rivlin would reduce annual federal health care spending by an estimated 1 percent of the gross domestic product (GDP). Based on the average rate of GDP growth across the past quarter-century, that would mean a savings, by that date, of about $4 trillion annually -- more than the entire current federal budget (which, of course, would be higher then as well). In addition, the plan would almost certainly lower overall nationwide health costs (the CBO doesn't score for this), not merely federal ones. 

If someone were to make such a serious and sensible proposal a centerpiece of his presidential campaign, where he'd really have the opportunity to sell it, it could be a winning political message well suited to achieving historic ends. It could enable our country to finally turn the corner toward financial solvency, while also going a long way toward restoring the Founders' vision of liberty and opportunity. Moreover, it would be a lot harder to achieve these crucial ends after 2014, at which time Obamacare is slated to go fully into effect -- if someone doesn't step up and defeat President Obama first.