Graph of the day: Saving seniors from Ryan

In December, Rep. Paul Ryan (R-WI) and Sen. Ron Wyden (D-OR) offered a proposal that marked a compromise from Ryan’s original plan last year to convert Medicare into a voucher program. The new system offers a more generous framework to pay for seniors’ care and includes the traditional Medicare program as a “public option” within the system.

Unfortunately, the innovations of Ryan-Wyden run headlong into this graph:

As you can see, Medicare—and not the private, competitive market—has been the most effective at restraining health care cost growth. It’s not clear making a move toward the private market would reduce cost growth rather than accelerate it.

The Commonwealth Fund explains why: “Only Medicare, as the largest purchaser of health care, has sufficient clout to set payment rates while still engaging the participation of nearly all providers.” Ryan-Wyden would weaken that clout if individuals moved to private insurers, and without clearly cutting costs in exchange for doing so.

That’s not to say Ryan-Wyden is a waste. While it fails as a true compromise that brings progressives on board, it provides a possible starting point for a workable proposal.

As a first amendment, Ryan-Wyden must continue to guarantee Medicare’s health benefits to seniors even if they purchase their insurance elsewhere. Switching to “premium support” as Ryan’s original proposal did means guaranteeing seniors a dollar amount, which may or may not be up to the task of covering their care. Benefits must be guaranteed.

As Jonathan Cohn writes, “Wyden swears” the proposal does guarantee benefits, and “seems utterly sincere about this. But the policy provisions to back up that vow are not in the paper he and Ryan make public on Thursday. Mostly the document is just too vague.” There’s a reason for that vagueness, too. The proposal says the Medicare option and its competitors must offer seniors traditional Medicare benefits, and that the size of the subsidy is determined by the second-cheapest option. But the proposal also caps the vouchers at inflation plus one percent beginning in 2023.

The reason is simple: The non-partisan Congressional Budget Office won’t record any savings due to market competition. Both Ryan and Wyden believe their proposal will save money through competition and the cap won’t be necessary, but they’ve included it in order to show actual savings.

They shouldn’t. If competition doesn’t work, seniors shouldn’t be punished for the failed proposal. In contrast, an amendment to eliminate the cap and guarantee benefits means experimenting with a free market system, but without betting the farm on it.

A second amendment should also appeal to progressives: In exchange for moving Medicare towards a market system, the “public option” proposal should return for the general health insurance market and be added on top of the 2010 health reforms. This proposal does the same thing as the Ryan-Wyden Medicare reform, but in reverse. It experiments with a government-run program, but without betting the farm on it.

With these two changes, Ryan-Wyden might begin to take shape as a real compromise proposal. It would include the guaranteed benefits progressives must require of any reform proposal, free market solutions conservatives are demanding, and the potential to cut costs without committing too strongly to any unproven methods.

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    Aaron Sinner's picture
    Aaron Sinner

    Aaron Sinner is a Hindsight Community Fellow.