The Corner

Romney on Entitlements

Having long criticized Mitt Romney for being too vague and risk averse in laying out how he would address the country’s major fiscal problems, I have to say that I was very impressed with what he had to say in today’s speech on spending, and especially with what he had to say about Medicare reform.


Some further thoughts and details below the fold:




A willingness to speak plainly about the scope of Medicare’s immense fiscal problems and to offer serious solutions is an absolutely essential test of seriousness for anyone who wants to be a leader on the national stage today. Our long-term debt problem is almost entirely a health-care cost problem, and therefore in turn a Medicare problem. Most congressional Democrats deny the very existence of the problem, or insist that Obamacare will fix it when in fact Obamacare promises only more of the same inefficiency and price controls that have caused Medicare’s woes. President Obama has at times noted the scope of the problem and acknowledged that, despite Obamacare’s enactment, “If you look at the numbers, then Medicare in particular will run out of money and we will not be able to sustain that program no matter how much taxes go up.” But he has refused to consider any steps that could actually address that problem.


It has been clear for many years what such steps would need to look like. Medicare’s “fee-for-service” payment system, which creates horrendous perverse incentives throughout the health sector, would have to be transformed into a “premium-support” system that, by providing seniors with a choice of private coverage options rather than a public monopoly, would create consumer pressure in a competitive insurance market and so create powerful incentives for efficiency and cost-effectiveness in health care.


The bipartisan Breaux-Thomas commission proposed such a reform in the 90s, but it was not pursued. House Republicans offered such a proposal in the Ryan budget in April, and almost all the Senate Republicans then voted for it too. Paul Ryan also offered a slightly different version of the idea together with Democratic budget guru Alice Rivlin as part of the Bowles-Simpson commission, and Rivlin then offered yet another similar idea together with former senator Pete Domenici in the fiscal commission they co-chaired for the Bipartisan Policy Center. The response from President Obama and congressional Democrats, however, has been unmitigated demagoguery, seeking to scare seniors about the Ryan plan (even though it would not affect current seniors or anyone near retirement today) and generally send the message that serious structural reform of Medicare was unacceptable.


The question all year has been how the Republican presidential candidates would approach the issue. Would they take up the challenge of making the case for a premium-support reform—trying to cut through the Democrats’ noise machine to explain to today’s seniors that nothing would change for them and showing tomorrow’s seniors why more choice in a more efficient system would be a better way to get comprehensive coverage? Or would they avoid the political risk and stick to vague platitudes and trimming around the edges? A reform of this magnitude could not succeed without the support of a president who had made clear before being elected that he would pursue it, so a great deal depends on how the candidates decide to proceed.


It is now clear that essentially all of them have made the right choice. Several (like Rick Santorum and Jon Huntsman) have endorsed the Ryan plan. Others (like Rick Perry and Newt Gingrich) have backed different versions of premium support in general terms. Until today, Mitt Romney had said that while he would sign the Ryan budget if it came to him, his own Medicare plan would be different.


In today’s speech, Romney began to lay out what that plan would like look, and the details are promising. The fact sheet put out by the campaign along with the speech puts it this way:


  • Nothing changes for current seniors or those nearing retirement

  • Medicare is reformed as premium support system, meaning that existing spending is repackaged as a fixed-amount benefit to each senior that he or she can use to purchase an insurance plan

  • All insurance plans must offer coverage at least comparable to what Medicare provides today

  • If seniors choose more expensive plans, they will have to pay the difference between the support amount and the premium price; if they choose less expensive plans, they can use any left over support to pay other medical expenses like co-pays and deductibles

  • “Traditional” fee-for-service Medicare will be offered by the government as an insurance plan, meaning that seniors can purchase that form of coverage if they prefer it; however, if it costs the government more to provide that service than it costs private plans to offer their versions, then the premiums charged by the government will have to be higher and seniors will have to pay the difference to enroll in the traditional Medicare option

  • Lower income seniors will receive more generous support to ensure that they can afford coverage; wealthier seniors will receive less support

  • Competition among plans to provide high quality service while charging low premiums will hold costs down while also improving the quality of coverage enjoyed by seniors


Of the various versions of premium-support proposed this year, this comes closest to the Rivin-Domenici plan, particularly because it offers fee-for-service Medicare as an option in the new system along with the private insurance options. The purpose of doing so is basically to smooth the transition for seniors, and to answer the charge that the reform would “end Medicare as we know it.” A form of it remains an option, but it can’t throw its weight around and force price controls on providers, so over time it would very likely grow more expensive and so less appealing and seniors would move away from it. Ryan didn’t include this option in his versions of premium support, though he has said he would have no problem with a plan that did.


The major question still unaddressed in the details released today has to do with how the rate of growth of the premium support payment would be set—whether there would be some pre-set rate tied to inflation or GDP growth (as all the plans proposed this year had) or whether it would be set by competitive bidding among insurers so that the market would set the pace of change and the risk would be borne by the government rather than seniors (as the Breaux-Thomas commission proposed and as I frankly think would be preferable). That’s not a small detail, but it is a detail: As a general matter, Romney has committed himself to a very bold and absolutely essential course of reform. And he has done so in greater detail (and so in a sense to a greater extent) than any of the other candidates—taking himself from most vague to most clear on this critical issue in one speech.


It can now be plainly said that the Republican Party is committed to facing up to the problems of Medicare and to a smart and plausible path toward fixing them—a path that many centrist Democrats also understand is necessary. On an issue that carries significant political risk, an almost-total consensus of the party’s elected officials and high-office seekers have taken the responsible path rather than the easy one.


The other ideas presented in Romney’s speech were also on the whole quite encouraging. He proposed to raise the Social Security retirement age and introduce greater means testing into the program (though I think it would be better to do this using the lifetime-earnings calculations Social Security already uses rather than based on income). These two reforms would make a big difference, and it’s good to see Romney (like Perry last month) stepping up with ideas for reforming both of our old-age entitlements—even the Ryan budget steered clear of Social Security. He also proposes block-granting Medicaid, significant cuts in domestic discretionary spending, and a variety of institutional reforms of the federal bureaucracy. If he combines this with an equally serious and straightforward tax-reform agenda as part of a plan to encourage economic growth and job creation, Romney could really claim the mantle of the conservative reformer in this race.


I have to say, for all of its eccentricities, and for all the conservative policy innovators who seemed like they might run but then chose not to, in terms of policy this is actually shaping up to be a very constructive and useful primary season. It is moving Republicans in the right direction on a series of crucial fronts—although not yet on every front. They still have not directed their appeals to the middle class sufficiently, and they have not given enough thought to a replacement for Obamacare. Perhaps most important, I think they still lack the right language for expressing the vision that unites their various policy proposals—the language of dynamism and growth in opposition to the stagnation that has been the defining feature of this final chapter in the story of the dying liberal welfare state. While the Democrats beat their chests over how equitably they plan to divide up the flesh of the economy once they have killed it, Republicans need to focus on reviving and growing it so that all could have more. We are instead still mired in the language of austerity—which is neither very attractive nor the best justification for any of the particular reforms that increasingly compose the conservative agenda.


One step at a time, I suppose. But we have seen some major steps in recent months, and today’s was definitely among the more important of them. Good for Romney.

Yuval Levin is the director of social, cultural, and constitutional studies at the American Enterprise Institute and the editor of National Affairs.


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