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Orszag and Klein vs. Ryan



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And so we have finally arrived at the heart of the matter.

In recent days, Peter Orszag, the now-former director of the Office of Management and Budget (he left the position at the end of last week), and Ezra Klein, the like-minded liberal blogger for the Washington Post, have weighed in — again — on Rep. Paul Ryan’s “Roadmap.” Orszag did so in a farewell speech at the Brookings Institution, and Klein in a blog post that went up yesterday.

Their takes on the “Roadmap,” and specifically how it would reform Medicare and health care, are similar and unsurprising. They both give Ryan credit for laying out a coherent and robust alternative to Obamacare. But they, along with many other liberal commentators, also completely mischaracterize what would occur if the Ryan plan were adopted, even as they gloss over the glaring deficiencies of the reform program they favor. Indeed, the irony is that the primary criticism they level against the Ryan plan is actually the reason to oppose Obamacare.

The great divide in American health-care policy is over what to do about costs. On one side are those who believe the answer is to put the federal government in the cost-control driver’s seat. That’s the fundamental premise of Obamacare. On the other side are those who believe the answer is vigorous price and quality competition in a reformed health-care marketplace. That’s the vision that animates the Ryan Roadmap.

Orszag and Klein argue that a key provision of the Ryan plan — the conversion of the Medicare defined-benefit entitlement into a defined-contribution payment (for those under age 55) — would amount to nothing more than a cost shift from the government to beneficiaries because they expect the defined-contribution payment would grow at a rate below health-care inflation.

But why is that necessarily the case? Orszag himself has spent the better part of three years telling everybody that health-care delivery today is highly inefficient. He’s right. There’s tremendous duplication and waste in American health care, much of it directly the result of the perverse incentives embedded in today’s Medicare structure. The question is, what can be done about it?

As I argued in a Galen Institute white paper released last month, the Ryan Roadmap is the answer. What’s desperately needed in health care today is a new dynamic in which efficiency and productivity are rewarded rather than punished. The Ryan program would do just that by converting millions of passive insurance enrollees (both in Medicare and in employer plans) into active, cost-conscious consumers. As more and more of these consumers received their federal support in the form of a defined-contribution payment, they would have strong incentives to get the best value possible from both the insurance they select and the “delivery system” they use to access services.

Orszag contends that the Ryan plan is based on a flawed premise — the notion that consumers facing more cost-sharing for services can do something about the high cost of care. He points out that most Medicare spending is concentrated in a relatively small number of high-cost cases with expenses that far exceed the up-front costs of even a high deductible plan. But the benefits of the Ryan plan would extend well beyond moving people into high-deductible insurance products. In a vibrant health-care marketplace, consumers would be able to pick from among competing delivery systems too, well in advance of needing expensive care. Hospitals and physicians would have strong incentives to reorganize and offer their services in ways that are less costly and more patient-focused in order to maximize enrollment in their networks. That’s the way to bring about genuine “delivery-system reform.”

The alternative to a reformed medical marketplace is government-driven cost control. Orszag is, of course, a true believer in the capacity of the federal government to engineer a more efficient health sector from Washington, D.C. — despite decades of actual experience indicating otherwise. The federal government has been running the Medicare program since 1965, and has been actively trying to use the purchasing power of that program since at least the mid-1980s to get better value for what is spent. There have been scores of demonstration projects and payment initiatives aimed at getting hospitals and doctors to change their business practices and increase their productivity. They haven’t worked. And the reason is that politicians and regulators have always found it much easier to cut costs in Medicare with across-the-board payment-rate reductions rather than reforms that single out some hospitals and physicians as low-quality providers.

Klein admits in his post that the real alternative to the Ryan program is a different sort of “cap” on spending, one that is placed on aggregate outlays, instead of entitlement payments to individuals, and enforced by governmental cost-cutting efforts instead of the marketplace. What he fails to note is that this kind of “cap” poses very real — and costly — risks to the beneficiaries, as can be seen in the provisions that were passed as part of Obamacare. Despite all of the talk of “delivery-system reform,” the real savings in Medicare from the new health-care law come from across-the-board payment-rate reductions, which hit all providers of services the same, regardless of how well or badly they treat their patients. The predictable result of these kinds of price cuts — confirmed by the chief actuary of the program — is that many willing suppliers of services will drop out of the program, which in turn will mean restricted access to care for the beneficiaries. So much for painless cost-cutting.

The country is at a crossroads on health care. We can either stick with the Obamacare program and rely on the federal government to control costs, with all that would mean for reduced quality and waiting lists, or we can empower consumers in a reformed marketplace, as proposed in the Ryan Roadmap. This is a debate Republicans should welcome — because presented with the arguments from both sides, commonsense voters are sure to recognize that the Ryan plan is better both economically and for the future of American health care.



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