Wednesday, February 3, 2010

Paul Ryan's plan to "balance the budget on the back of poor seniors"

The Economist's "Democracy in America" blog weighs in on Paul Ryan's Road Map to Ruin. If you're 54 or older right now -- the teabagger demo -- good for you. "You get caviar, and everybody younger than you has to pay for it." But if you're not in that demo -- and particularly poor -- the freedom Paul Ryan's plan giving you will make life harder -- and shorter.

So Mr Ryan wants to give 65-year-olds a $7,900 voucher to buy insurance that will, under optimistic assumptions, cost $10,800. What every senior citizen currently gets for free, under Medicare, will instead cost them an extra $2,900 a year, if they have it. For most, that will mean giving up benefits and getting less medical care, or going without insurance entirely. And every year, by design, Mr Ryan's proposal will widen the gap between the voucher and the cost of medical care by 0.7%, even after accounting for the effect his proposal will have on holding down medical costs. Every year, seniors will get worse and worse care. This is what the CBO means when it says:

Under the Roadmap, the value of the voucher would be less than expected Medicare spending per enrollee in 2021, when the voucher program would begin. In addition, Medicare’s current payment rates for providers are lower than those paid by commercial insurers, and the program’s administrative costs are lower than those for individually purchased insurance. Beneficiaries would therefore face higher premiums in the private market for a package of benefits similar to that currently provided by Medicare. Moreover, the value of the voucher would grow significantly more slowly than CBO expects that Medicare spending per enrollee would grow under current law. Beneficiaries would therefore be likely to purchase less comprehensive health plans or plans more heavily managed than traditional Medicare, resulting in some combination of less use of health care services and less use of technologically advanced treatments than under current law. Beneficiaries would also bear the financial risk for the cost of buying insurance policies or the cost of obtaining health care services beyond what would be covered by their insurance.

There are two other really interesting things about Mr Ryan's proposal. First of all, if you hit 65 before 2021, you still get Medicare, with all of its current perks. You're grandfathered in. So if you're 54 or over right now, his bill is a great deal for you: you get caviar, and everybody younger than you has to pay for it. Second, Mr Ryan's proposal necessarily sets a flat nationwide amount for each voucher. Medicare, on the other hand, pays variable reimbursement rates in different parts of the country, based on the fact that medical costs can vary by two times or more between, say, Nassau, New Hampshire and Lincoln, Nebraska. According to the Commonwealth Fund, the average individual premium in Nebraska in 2008 cost $4,392; in New Hampshire, it was $5,247. So if you live in Nebraska, under Mr Ryan's plan, you luck out. If you live in New Hampshire, not so much. One could imagine an interesting conversation between Ben Nelson and Judd Gregg regarding Mr Ryan's Roadmap, if there were ever any chance of it actually being voted on.

Mr Ryan has put forward a serious proposal for shrinking medical-cost inflation and hence shrinking the long-term federal budget deficit. It does so by ending America's provision of first-rate health care to all seniors. Rich seniors will still be able to afford high-quality medical care. Poor seniors won't. They will suffer more and die younger. A different approach to solving America's health-care cost problem might involve letting Medicare use its vast bargaining power to negotiate lower rates with the providers of pharmaceuticals; establishing a commission of experts (MedPAC) to rate the effectiveness of medical procedures, to avoid wasteful incentives in the current fee-for-services medical model; and establishing bundled payments for disease management, to achieve Mayo-Clinic-like efficiencies in care while improving quality. Those are the models proposed in the Democratic bills currently in Congress. But they're really complicated and hard to understand—they make for a bill that's 2,000 pages long. And everybody knows the American people hate that. Mr Ryan proposes to simply slash Medicare spending and balance the budget on the backs of poor seniors. That'll work too.

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