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The Agenda

NRO’s domestic-policy blog, by Reihan Salam.

A Parallel Between Obamacare and Ryancare



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One of the central criticisms of the Ryan Roadmap is that the fact that it shifts Medicare from offering a defined benefit to a defined contribution to the purchase of health insurance coverage, it will leave millions of older American stranded with unaffordable premiums. The rejoinder is that the shift itself will encourage the emergence of low-cost plans and also low-cost providers over time, a process that has the potential of bending the cost curve downward. But that is ultimately a speculative claim, albeit one with a pretty sound theoretical basis, and so you can’t expect Ryan’s critics to accept it on faith.

Or can you? In an excellent post running through the CBO analysis, James Capretta offers the following on thelong-term budget forecasts.

Similarly, in jury-rigging “long-term deficit reduction,” the latest plan would first increase the premium assistance subsidies paid to low- and moderate-wage families above the levels in the Senate-passed bill, but then index their value to something below the growth in premiums to give the appearance of deficit reduction in the decade after 2019. There’s no “bending of the cost-curve” here. It’s sleight of hand that, if actually implemented, would force millions of low-income families to pay ever-higher premiums every year. The Democrats don’t want to talk about that. They just want to pretend they have been serious with fiscal discipline.

Now, I actually think that this is a reasonable decision as a substantive matter. A shift to a defined contribution is a good idea. That, of course, is the logic behind the Ryan Roadmap for Medicare, albeit Ryan makes the case transparently and explicitly. 

So let’s get this straight: the Ryan approach and the Obama approach both gut the extent of subsidies over time from an original baseline, in Ryan’s case for Medicare and in Obama’s case for the under-65s on the exchanges.

But the Obama approach creates a regulatory regime that will make it very difficult for the consumer-directed to gain a foothold. While there’s a chance that the Ryan approach will break the institutional isomorphism that plagues the insurance sector and thus lead to lower cost options, the Obama approach helps entrench the high cost structures that serve the interests of medical providers and the pharmaceutical lobby while also gutting subsidies long term

To be sure, subsidy levels can be adjusted upward or downward over time, and likely will. That’s why the long-term budget projection isn’t terribly useful. Note that this is also true of the Ryan Roadmap: one can imagine a more expensive version that also raises more tax revenue.



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