Ryan plan would boost U.S. economic security
It’s intriguingly simple: Limit future increases in Medicare and Medicaid healthcare spending to cut debt. That’s the easy-to-understand core of House Budget Committee Chairman Paul Ryan’s budget plan, The Path to Prosperity. But the idea risks a voter backlash if medical inflation doesn’t slow, too. Otherwise, quality and service will suffer, badly fraying the social safety net. Republican Ryan thinks injecting some needed market discipline rather than sticking with President Barack Obama’s bureaucratic tinkering will do the trick. And he’s right.
Federal government healthcare expenditure for those two programs could more than double over the next four decades to nearly 14 percent of GDP, according to the Congressional Budget Office. The CBO says the new plan devised by House Budget Committee Chairman Paul Ryan would keep spending at around 5 percent of output.
Or to put it another way, without the Ryan plan, Medicare and Medicaid are a $58 trillion (net present value through 2085) unfunded liability. These two programs are the main reason the CBO sees America’s debt-to-GDP ratio hitting 344 percent (assuming the economy doesn’t collapse first) in 2050 vs. 62 percent in 2010. But with the Ryan plan, the entire federal debt is just 10 percent of GDP in 2050 before disappearing later that decade. Problem solved.
There’s no fiscal miracle here. Ryan accomplishes this feat through simple math. He would increase revamped subsidies to seniors and the poor at rates far below the predicted pace of healthcare inflation. That has led the CBO to raise an eyebrow, wondering if such effective reductions would be politically sustainable. Oldsters would, for instance, eventually bear a far larger share of personal healthcare costs than under the current Medicare program.
But what the CBO misses is that Ryan bets he can square the circle by slowing medical inflation through increased competition. Instead of Medicare providing insurance, retirees would pick their own government-certified private plan, helped by a fixed subsidy from Washington. Fancier coverage would cost more. And in exchange for some protection from big bills, seniors would pay a greater share of small ones. Both features might encourage bargain hunting among competing plans. Republicans also want to lessen the role of middlemen in medical billing. Economists think heavy intermediation makes people less aware of the costs and therefore allows healthcare prices to rise faster than they should.
Competition generally works in the other five-sixths of the U.S. economy. And it should also in healthcare if government loosens its grip. Prices for laser eye surgery, a procedure commonly paid directly out of pocket, have fallen sharply over the past two decades. Then there’s the Swiss example. There citizens choose, aided by subsidies, among competing private insurers who must provide a basic benefits package. Ryan’s Medicare reform proposals bear more than a passing resemblance to that system. Costs have risen more slowly in Switzerland than the United States. The Swiss also devote just 11 percent of their economy to healthcare, counting both government and private spending. While that’s a lot compared to the UK and Scandinavia, it’s thriftier than America’s 17 percent and rising.
The only real differences between Ryan’s new plan and the one he co-authored with Clinton administration economist Alice Rivlin, is that it’s a bit stingier on increasing the subsidies and it doesn’t have a public option. That, along with the Swiss feel to it, is evidence that what Ryan has proposed is a rather centrist plan that Democrats should flock to if they want to preserve economic security for all Americans.