The Corner

The Times and the Ryan Budget

Today’s New York Times editorial against the new Ryan budget is basically a reprinting of the DNC talking points that I got by e-mail yesterday before the budget was even released. The Times does, however, expand on one argument in those talking points in a way that clarifies further that the editorial was written without actually referring to the budget document it criticizes. In taking up Ryan’s Medicare proposal, the Times says:

His plan to convert Medicare to a “premium support” system, though less damaging than last year’s proposal, still weakens a guarantee to the elderly and risks driving up costs for future beneficiaries. He would still offer the elderly a fixed amount of money to shop for their own health insurance, but allow the option of enrolling in traditional Medicare.


Unfortunately, that could lead to higher costs and premiums in traditional Medicare because it would attract older and sicker patients who would be expensive to cover, while healthier, cheaper patients flocked to private plans.

Well no. First of all, this makes it sound like “the option of enrolling in traditional Medicare” is an alternative to the “fixed amount of money to shop for their own health insurance.” But the Ryan plan proposes to transform Medicare into a premium-support system and to have one government-run fee-for-service option available to seniors within that system — which would compete with private insurers for the business of seniors deciding how to use that “fixed amount of money.” It is not an alternative to premium support but an element of it.


More important, though, the second paragraph quoted above is just flat false. It seems to be based on the idea that the private insurers competing for business would be able to cherry-pick only healthier or younger seniors while the fee-for-service option would be stuck with all the most expensive beneficiaries. This has long been a Democratic line of argument against allowing competition for Medicare dollars, and it has been one of the arguments the White House has used against the new Ryan budget yesterday and today. But this argument can only be a function of ignorance or of dishonesty, since the actual Ryan proposal is specifically designed to avoid this effect. As the budget document (on page 53) puts it:

Seniors would be guaranteed a plan that is at least the value of the traditional fee-for‐service Medicare option. Health plans that participate alongside a traditional Medicare option in the Medicare Exchange would be required to offer insurance to all seniors — regardless of age and health status — thereby preventing insurers from cherry-picking only the healthiest seniors for coverage under their plans. These protections ensure that Medicare’s sickest and highest‐cost beneficiaries have access to affordable and quality coverage choices. The proposal requires all plans on the Exchange to include guaranteed issue (i.e., they cannot deny coverage based on pre‐existing conditions) and community rating (i.e., they cannot impose prohibitively disparate costs on seniors) to ensure that seniors are able to choose an affordable health plan that works best for them — without fear of denial or discrimination.

So intentional cherry-picking is prohibited. And if there is an unintentional imbalance in the risk profile of different plans, the Ryan budget requires it to be offset by a risk-adjustment process. Here is the budget document again (pages 53 and 54):

The federal contribution to seniors’ health plans would be risk‐adjusted so that the sickest seniors are protected from high premiums as well as adverse selection from insurers. Building on the risk‐adjustment tools currently used by the Centers for Medicare and Medicaid Services (CMS), proper risk adjustment would ensure that seniors with the highest health costs would still be able to find an affordable plan. Federal contributions would be increased to account for a senior’s health status and age.


CMS would also conduct an annual risk review audit of all insurance plans participating in the Medicare Exchange. Insurance plans covering a higher‐than‐average number of low‐risk seniors would pay a fee. Conversely, insurance plans covering a higher-than‐average number of high‐risk seniors would receive an incentive payment. The fees and incentive payments would flow internally through the same fund, so that payments to plans that cover high-cost patients would be funded wholly by the fees from plans that cover low-cost patients.

The Ryan budget would move Medicare very significantly in the direction of market competition that could drive efficiency through consumer pressure (and, at least as important, would free Medicare and the broader health sector from the immense inefficiency created by the utter dominance of today’s fee-for-service program). But Medicare would remain a federal program to provide a guaranteed insurance benefit to older Americans — it would just do so in a way that bears some relation to modern economics, rather than one that continues the search for the perfect price-control formula that so long eluded Soviet central planners. The Times’s complaint could only make sense if you just haven’t looked at what Ryan is proposing.

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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