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Grasping the Medicare Distortion
The Left’s case against the Romney-Ryan plan is not based on the facts.

Mitt Romney introduces Paul Ryan as his running mate, Norfolk, Va., August 11, 2012.

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Yuval Levin

In other words, even under the very constrained competition of Medicare Advantage, in which prices are set by Medicare’s bureaucracy, the Ryan-Wyden approach would have reduced per-beneficiary spending by 9 percent in a single year while still providing seniors with the same comprehensive insurance coverage. With real competition through a bidding system, the reductions in the rate of the program’s growth over time could be enormous. And if those savings don’t in fact materialize, we would just end up where we are today — which is where Democrats seem to want to end up anyway.

In order to be scoreable by CBO, the Wyden-Ryan reform also has a kind of backup: a requirement that Medicare’s growth not be faster than 0.5 percent more than GDP growth per year. That is, not by coincidence, the same maximum rate of growth set in President Obama’s budget. Neither maximum rate is really all that meaningful — it’s a scoring convention, not a reform; if it were exceeded, Congress would almost certainly just suspend it, as it has when past maximum growth rates (like the one in place since 1997) have been exceeded. So in this respect, too, if Ryan-Wyden’s competitive system didn’t keep costs down, we would just be in the same place the Democrats want to end up. It is not the maximum growth rate but the mechanism for remaining below it — the bidding process that allows for the transformation of Medicare into a new kind of intensely competitive insurance system with both a defined benefit and a defined contribution at once — that is the real key to the Ryan-Wyden reform.

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The proposal would also have this reform begin only ten years from now, and affect only new entrants into Medicare, so that all current seniors and everyone now over 55 would be left entirely untouched for the rest of their lives, unless they chose to enter the new system. Thus, today’s seniors have no reason to complain about the proposal, since it would not affect them, and tomorrow’s seniors have essentially nothing to lose by it, since they would still be guaranteed a comprehensive benefit at only today’s out-of-pocket costs.

Essentially all of the criticisms of the Ryan-Wyden(-Romney) proposal ignore its innovative combination of defined-contribution and defined-benefit insurance — directing themselves instead to older versions of the premium-support idea — and ignore the fact that it would leave all current seniors and near-retirees untouched. Thus just minutes after Paul Ryan was announced as Mitt Romney’s running mate, Obama campaign manager Jim Messina said in a statement that Ryan’s Medicare plan would “end Medicare as we know it by turning it into a voucher system, shifting thousands of dollars in health care costs to seniors.” Some Democrats even put a particular dollar figure on that supposed cost shift — $6,400. That figure comes from a (rather rough) CBO calculation regarding a prior version of the premium-support idea, not the Ryan-Wyden proposal that Romney has endorsed. CBO would certainly not claim that the figure applies to what is now the Romney-Ryan plan, or indeed that any such shift would occur under that plan.



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