The Medicare Distortions
The president and his defenders know the truth won’t work, so dishonesty it is.

Rep. Paul Ryan (R., Wis.) discusses Medicare and the federal budget in 2011.


James C. Capretta

To begin with, those attacking Ryan have resorted to silly name-calling (“VoucherCare,” “CouponCare”) in an attempt to discredit the idea of Medicare premium support. But premium support — which, by the way, has a long bipartisan history, including support from Democratic senator Ron Wyden — cannot be considered a “voucher” program any more than the prescription-drug benefit in Medicare is a voucher program. Under the drug benefit, the federal government accepts bids from private insurers wishing to offer coverage to the beneficiaries. The government’s contribution toward coverage is based on the weighted average of those bids. Every beneficiary in a given market area is entitled to the same level of governmental support. The government provides an organized format to assist the beneficiaries in their choice of plans. And once a beneficiary decides on a plan, the government’s contribution is sent directly to the insurer. No voucher is ever issued. That’s exactly how a Wyden-Ryan premium-support plan would work in the rest of Medicare.

Then there is the line of attack that the Ryan Medicare reform will increase costs for seniors. Ironically, these attacks are based on two studies that contradict each other. The first, from the Congressional Budget Office (CBO), examined the Ryan budget plan from 2011 (rather than 2012), so this study is now outdated. In it, the CBO said that private insurance plans would cost more than the traditional, government-administered Medicare option, and thus eliminating that option would drive up costs for seniors by $6,400 annually. The second study, published in The Journal of the American Medical Association, said that the private plans would cost less than the traditional government option in many parts of the country, and thus seniors who wanted to stay in the traditional option would be forced to pay higher premiums.

So which is it? Are private plans less expensive or more expensive than the traditional program? The truth is that, despite claims to the contrary, private plans are able to deliver the Medicare benefit package at much lower costs than the traditional program in many parts of the country. And that shouldn’t be surprising, because the traditional program is incredibly inefficient. This has been confirmed by data collected by the Medicare Payment Advisory Commission (MedPAC) over many years. In its latest “data book,” MedPAC estimates that the average HMO offering coverage to Medicare beneficiaries in the current Medicare Advantage program can provide the statutory set of Medicare benefits for 5 percent less than the traditional program.

Under the Wyden-Ryan reform plan (which formed the basis of the Medicare reform in Ryan’s 2012 budget plan), the government’s contribution toward coverage would be set at the second-lowest bid in a region. As indicated by the MedPAC data, that would almost certainly be a private plan in many parts of the country, but in rural areas it is entirely possible that the traditional, fee-for-service program could be the lowest-cost option. Regardless, however, beneficiaries will always have access to at least two plans that would not increase their premiums at all above what current law would require. So it is completely false that seniors would have to pay more. The proposal is designed explicitly to ensure that seniors will not have to pay more unless they decide on their own to sign up for more expensive insurance.

Finally, there is the issue of whether premium support will work to slow the pace of rising costs. The president’s defenders have argued that competitive pressures will never work and that the only solution is more government regulation and price controls. It is of course the height of hypocrisy to make this argument now, because less than two years ago the president’s apologists sold Obamacare to the American people on the (false) claim that it would harness competitive pressures in the state-based exchanges. Now that Ryan and others are arguing that competition is needed to control Medicare costs, Obamacare’s defenders are showing their true colors — which is to say they have abandoned their supposed support for competition and are now arguing that the only solution is central government regulation over the entire system.

But the evidence shows otherwise. The Medicare drug benefit, which truly is a premium-support plan, continues to work incredibly well. The average beneficiary premium in 2013 will be just $30, the same as it was in 2012 and 2011, and just $7 more than it was in 2006. Overall, spending on the program is coming in more than 40 percent below initial projections. Competition and transparency in pricing are putting downward pressure on premiums and the costs of individual prescriptions. Seniors like the program, and competition remains vigorous.

As the New York Times recently reported, at the time the drug benefit was enacted, Nancy Pelosi said, “Most seniors will be worse off,” and “This is the beginning of the end of Medicare as we know it.” She couldn’t have been more wrong, as are those attacking Ryan today.

In the end, the debate over Medicare is no different from the debate about health care more generally. Who is in control? Is it the federal government? Or is it American consumers and their families, working with their physicians? President Obama’s plan would lead inevitably to diminished quality in American health care, and eventually to rationing and waiting lists for services. That is always the byproduct of a centrally managed system. The Romney-Ryan vision is very different. They want a patient-centered system that fosters life-saving innovation and disciplines costs without sacrificing quality. When the debate is seen this way, there is little doubt which approach the American electorate would choose.

— James C. Capretta is a fellow at the Ethics and Public Policy Center and was an associate director at the Office of Management and Budget from 2001 to 2004.