The Ryan-Wyden Plan

by Veronique de Rugy

After reading Rep. Paul Ryan and Sen. Ron Wyden’ s outline of their new Medicare-reform plan, I am left extremely underwhelmed. Leaving the politics aside, here are my main concerns/questions (for now):

1. If Medicare, as we know it, is unsustainable, why keep it as an option in its current form?

2. If you keep the program in place, how will this plan manage to create a level playing field between Medicare and private plans? And if it can’t, how realistic are the cost-savings expectations? Suderman makes a good point:

As with the Ryan budget (and ObamaCare, for that matter) the hoped-for cost-savings may be unrealistic. So is the hope that the government can spur cost-saving competition while leaving a government-run Medicare option in the mix. That’s because it’s hard to create a level playing field between private and public insurance: Look at what’s happened in Florida, where a public property insurance program knocked out private competitors using artificially low rates essentially subsidized by taxpayers. The program is now woefully underfunded, and when a big insurance tab eventually comes due, the state’s taxpayers will have to foot the bill through increased taxes or spending cuts. Medicare, meanwhile, already hides its administrative costs and inefficiencies within the unmappable jungle of federal spending; what guarantee is there that it wouldn’t do the same under this plan?

3. Why push off urgent reforms for a decade?

  • According to the Trustees’ Report, Medicare will become insolvent by 2024. If you read the letter at the back of the Trustees’ report, however, it is obvious that these are extremely rosy estimates and Medicare will be insolvent way sooner than that. This plan, which doesn’t kick in until 2022, won’t help. Josh Barro explains:

    The downside of including current over-55s in reform is smaller than widely thought, but the upside is large. Indeed, “save money now” is the key lesson I draw from pension reform fights in states around the country.

    In 2009, a lot of states passed “pension reform” that only changed benefits for newly hired employees, meaning that pension checks would start being smaller for a handful of workers around 2040. These reforms met little political resistance because current workers got to keep earning the same benefits as before. Lawmakers also found, to their chagrin, that the reforms saved trivial amounts of money in the current period. A lot of these states had to come back for another round of reform that would actually create current-period savings, and more recent pension reforms have been better.

  • This is a good example of dessert-now-spinach-later policy. In this case, however, older people are the only ones eating desert and younger people are left with the spinach and little prospect of any dessert at all.
  • The proposal includes no credible plan to force future Congresses to implement its reforms.

Any bipartisan plan that makes significant reforms to Medicare would be a step in the right direction. However, I am skeptical that this plan can deliver on its promises.

For good analyses of the plan, I recommend reading Peter Suderman, Josh Barro, and Phil Klein .

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