The Public Policy

Mediscared Silly

Seniors will fare better under Paul Ryan’s reforms than they will under Obamacare.

By and From the September 2012 issue

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IF ONE WERE TO FIND a stray copy of the Democratic National Committee’s 2012 playbook, perhaps inadvertently left at a Capitol Hill happy hour by a hapless intern, the left’s obsession with Wisconsin Rep. Paul Ryan would become immediately clear.

Ryan, the House Budget Committee chairman, has proffered an ambitious plan that would, among other things, reform Medicare, the federal health care entitlement program for seniors.Democrats intend—and indeed already have begun— to use Ryan’s plan as a bludgeon against Mitt Romney and other GOP candidates further down the ticket.

President Obama has said that Ryan’s plan would “end Medicare as we know it.” (As if Medicare weren’t speeding toward self-destruction on its own.) The DNC’s Chairwoman and Chief Pit bull, Rep. Debbie Wasserman Schultz, went further, calling the plan “literally a death trap for seniors.”

With all due disrespect to the congresswoman, it is Obamacare that should make seniors’ hair (or what’s left of it) stand on end. The president’s signature “reform” law will cut Medicare spending and lead to de facto rationing within the program.

Ryan’s plan exempts today’s seniors from any Medicare changes; Obamacare’s mangling of the program will apply to even those who have already retired. Further, Ryan would give workers under age 55 a choice between a private plan and traditional Medicare when they retire.

OBAMACARE BOOSTERS BRAG that it will expand coverage to uninsured Americans. What’s left unsaid is that the law offsets those new outlays by slashing Medicare payments to doctors and hospitals by $1 trillion over the next 10 years alone, according to the latest CBO projections.

Indeed, the program’s chief actuary reports that by the end of this decade, Medicare’s payment rates to doctors and hospitals will drop below those of Medicaid, which already pays so little that many doctors do not accept it, leaving poor participants Unable to find timely, essential health care. Ultimately, Medicare payment rates are projected to fall to one-third of the rates paid by private insurers.

Obamacare also establishes the Independent Payment Advisory Board (IPAB), an unelected body with the power to adopt still more cuts in Medicare payments as it deems necessary without any further congressional action. As the chief actuary reports, “The Secretary of [Health and Human Services] is required to implement the Board’s recommendations unless the statutory process is overridden by new legislation.”

Such draconian cuts will undoubtedly create health care chaos for seniors. Two-thirds of hospitals are already losing money on Medicare patients, according to the chief actuary. Doctors and hospitals that provide critical care to the elderly, such as surgery for hip and knee replacements, sophisticated MRI diagnostics, CT scans, and even treatment for cancer and heart disease, will either withdraw from serving Medicare patients or face staggering financial losses. If the government refuses to pay competitive rates, then seniors are not going to receive the treatment and care they need. These dramatic cuts are a form of government heath care rationing—albeit a ham-fisted one.

This is not the way to solve Medicare’s fiscal problems. It’s like trying to cut the Pentagon’s budget by simply refusing to pay manufacturers full price for the Air Force’s planes, the Navy’s ships, and the Army’s tanks and artillery.

CONTRARY TO THE CHILDISH SILLINESS of Wasserman Schultz, Ryan’s Medicare reforms would simply extend to Medicare Parts A and B the popular and successful policies of Medicare Parts D and C, which would reduce costs through market competition instead of rationing.

Medicare Part D, the prescription drug program, works just like Ryan’s proposed reforms. The program provides seniors with premium support payments, which they use to purchase private prescription drug coverage of their choice. Because of market competition and incentives for seniors to choose lower-cost plans, Part D costs have run 40 percent below projections.

Medicare Part C, otherwise known as Medicare Advantage, already allows nearly 25 percent of seniors to choose private insurance instead of traditional Medicare coverage.

Private insurers competing for seniors under this reform would be required to take all who chose them, at standard market rates, regardless of age or health condition, with no exclusions for pre-existing conditions.

Ryan’s Medicare would provide higher payments to the insurers of sicker seniors and assess fines on those covering more low-risk seniors. Seniors could also choose Health Savings Accounts, which provide further incentives for individuals to control their own health spending.

For these reasons, the Ryan plan has drawn support from some unlikely sources, including ultraliberal Oregon Sen. Ron Wyden and longtime liberal academic Alice Rivlin, the “godmother of the CBO.”

Basic, fundamental, structural reforms such as these could help make entitlement reform politically feasible and would ultimately reduce government far more than simple slash-and-burn benefit cuts.

Even larger spending reductions could be achieved by allowing workers the freedom to put their Medicare payroll taxes in personal savings and investment accounts. Over an entire working career and assuming only standard, long-term market returns, a participant would accumulate enough capital to pay an annuity roughly three times what his Medicare payroll taxes provide. Seniors could use those annuity payments to further finance their private health insurance. Such a system could, quite possibly, close Medicare’s entire, enormous, longterm financing gulf with no tax increases or further spending reductions.

The accounts would not just trim the growth of Medicare benefits, but also shift all the spending financed through those payroll taxes to private savings, investment, and insurance—which would on its own produce the biggest reduction in government spending in world history.

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About the Author

Stephen Moore is the chief economist at the Heritage Foundation.

About the Author
Peter Ferrara is Director of Entitlement and Budget Policy at the Heartland Institute, General Counsel of the American Civil Rights Union, Senior Fellow at the National Center for Policy Analysis, and Senior Policy Advisor on Entitlements and Budget Policy at the National Tax Limitation Foundation. He served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under President George H.W. Bush.