The Spectacle Blog

Medicare and Free Market Principles

By on 5.23.11 | 5:15PM

In his article outlining his objections to Paul Ryan's plan for reforming Medicare, Sen. Scott Brown cites concern for the finances of the elderly as a key point. He writes, "Another key principle is that seniors should not have to bear a disproportionate burden."

Now, Brown's opposition to the Ryan plan is probably based on the fact that he faces a reelection campaign in a deep blue state rather than legitimate policy concerns. Nevertheless, this line of argument -- that the Ryan plan would place a disproportionate burden on seniors -- reveals a misunderstanding of what the plan is supposed to do.

The premise behind the Ryan plan is that giving people financial support to purchase health insurance plans individually would remove certain market distortions inherent in the Medicare fee-for-service system. The idea is that those distortions lead to arbitrary health care prices and, accordingly, inefficient utilization of health care services, meaning that some people use some health care services wastefully, and others are unable to get the health care they want or need. 

By reforming Medicare so that it more closely resembled an actual insurance market, the Ryan plan, in theory, would subject health care prices to market pressures, ultimately decreasing the amount of money that the government spends on health care. And by making health care pricing more transparent, the plan would improve the efficiency of health care use, leading to shorter wait times, higher quality care, etc. 

There are good reasons to think that a plan along the lines of the Ryan "Path to Prosperity" would have the desired effects. The examples that Ryan often uses are those of the market for Lasik eye surgery or the relative efficiency of Medicare Part D, the prescription drug benefit. Of course, there are other reasons to think that the plan wouldn't work out as promised -- but Brown doesn't mention any in his piece. 

That's the logic underpinning the Ryan plan, and it's a conservative logic. When the Congressional Budget Office or other analysts project the effects of a plan, they don't do so from a free-market perspective. So the CBO's analysis, for instance, projected that the Ryan plan would lead to the government shifting the costs of health insurance from the government's books to senior citizens', without generating cost savings or improving access to or quality of health care. In other words, according to the CBO's analysis, the Ryan plan would address the long-term unsustainability of the federal government without improving the health care insurance market for seniors, by simply making seniors foot more of the bill. 

That's not what Ryan thinks would happen. For Ryan and others who see markets and the price mechanism as necessary for efficiency, moving to a more patient choice-centered system will both decrease government spending on health care for seniors and improve seniors' health care. 

So when Scott Brown writes that the Ryan plan places a "disproportionate burden" on seniors, he's indicating that he doesn't think much of markets in health care -- or that he sees some other fatal but unspecified problem with plans like Ryan's. He's also saying that he doesn't think that the threat of fiscal insolvency is real enough to justify the cruelty of requiring a greater financial contribution from Medicare recipients for their coverage. 

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