Politics & Policy

The Ryan Plan, Take Three

The GOP’s budgeteer has a better option for Medicare reform.

According to dispatches from Washington, Representative Paul Ryan, the chairman of the House Budget Committee, was considering an acceleration of his “premium support” plan for Medicare, in order to help the House produce a budget resolution that eliminates the deficit in ten years. This led to shudders from moderate Republicans and howls from liberal Democrats, forcing Ryan to retreat. But Ryan may now have a more politically attractive way to reform Medicare, one that saves even more money.

Here’s the background: In January, in response to demands from fiscal conservatives who didn’t want to raise the debt ceiling, House speaker John Boehner (R., Ohio) pledged that this year’s House budget would eliminate the deficit in ten years. Because health-care entitlements such as Medicare are the largest driver of growth in government spending, the only way to make the numbers add up is to further reduce spending on these programs.#ad#

Previous versions of the Ryan budget ensured that no one over the age of 55 would endure any changes to Medicare. This way, Republicans could insulate themselves from the “throwing Granny over the cliff”–style attacks that Democrats usually lob their way. But Molly Hooper of The Hill reported that Ryan proposed moving that age threshold higher, so that more future retirees would be shifted into the premium-support system.

“Paul Ryan was pretty clear that that could happen,” one House Republican told Hooper. “You could have to take it up to a higher number like 56, 57, 59. . . . It could be higher than 55, but he also said, ‘We don’t have any numbers yet.’” Some moderate Republicans, who had previously assured restive constituents that the changes wouldn’t affect anyone older than 55, were displeased. “[If] this budget forces them to renege on that, that would be problematic for many,” said one. On Wednesday, Politico reported that Ryan had withdrawn the proposal.

One of the biggest roadblocks to implementing Ryan’s Medicare reforms has been the Congressional Budget Office. Douglas Elmendorf, the CBO’s director, has admitted that his analysts “don’t have the tools” to predict how a market-based approach to Medicare reform would reduce federal spending. As a result, the CBO understates the savings from the Ryan plan, forcing Ryan to try to accelerate the implementation of his reforms.

But Ryan now has another path to the same end. There has been an important development since last year’s House budget: the reelection of President Obama. Obama’s victory means that Obamacare will be implemented, warts and all, making it politically impossible to repeal, even if Republicans are fortunate enough to retake Washington in 2017.

How does that affect entitlement reform? By making it much easier to raise Medicare’s retirement age. If Medicare’s eligibility age increases, younger seniors will have another option for gaining subsidized coverage: Obamacare’s insurance exchanges.

The exchanges use a premium-support system that is nearly identical to the one that Paul Ryan proposes for Medicare. There are two key differences. First, Ryan’s most recent proposal included a government-run “public option”; Obamacare’s exchanges do not. Second, Obamacare’s exchanges contain significant means-testing provisions; if the entire Medicare population were eventually to migrate over to these exchanges, the wealthiest quartile of retirees would move off the government-health-care rolls altogether. By contrast, the Ryan plan provides subsidized coverage to all seniors, even the very wealthiest.

In other words, raising Medicare’s retirement age — say, by three months a year, every year, for the foreseeable future — would be a simple way to introduce premium support to younger seniors while making no changes to the program for current retirees and older future ones. In addition, because such a measure would move the wealthiest seniors off of government assistance altogether, it would likely reduce spending more quickly than the old Ryan plan did. And lower-income seniors who want to retire at 65 could still do so, because they would remain eligible for subsidized coverage in the Obamacare exchanges.

The best part of all? Every liberal Democrat voted for Obamacare, making this approach much more difficult to attack. When Senator Sherrod Brown (D., Ohio) heard about Paul Ryan’s plan, he was less than pleased. “The people who are cleaning your hotel room, the people who are serving dinner here . . . can’t work until they’re 70 years old,” he thundered on Tuesday.

But Senator Brown appears to have forgotten that these housekeepers and waiters would be entirely protected, thanks to a program that Senator Brown himself voted into law. After all, if Obamacare’s exchanges are good enough for 64-year-olds, aren’t they good enough for 65-year-olds too?

Indeed, migrating seniors into Obamacare’s exchanges allows us to allocate scarce taxpayer resources to lower-income retirees, who truly need the help, and away from wealthy seniors, who do not. Instead of raising taxes on the wealthy, shouldn’t we first stop spending money on them? Why should middle-class taxpayers be forced to fund government-sponsored health insurance for Mitt Romney and Warren Buffett?

Representative Ryan may have already fully committed to reprising the plan he passed through the House in 2011 and 2012. But Obamacare’s unfortunate victory in November has changed the entitlement game, and Republicans would be well-served to see its silver lining. It may be too late to repeal Obamacare. But it isn’t too late to replace the Great Society.

Avik Roy is a columnist at NRO and a senior fellow at the Manhattan Institute. You can follow him on Twitter at @aviksaroy.

Avik Roy — Avik Roy is the President of the Foundation for Research on Equal Opportunity (FREOPP.org), a non-partisan, non-profit think tank.

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