Peter Orszag on the Unwisdom of Destroying Medicare to Replace It with RyanCare for the Elderly
PO:
Sharing Costs Is No Way to Fix Medicare: Many Republican policy makers appear conflicted about... Paul Ryan... because they like its substance, but believe it is bad politics, especially among elderly voters. In truth, the substance is not particularly appealing either.
At the heart of the Ryan plan is a shift within Medicare toward consumer-directed health care -– which in turn is predicated on increasing beneficiaries’ "skin in the game" to make the health system more efficient.... [T]he plan would not live up to its billing.... The CBO found that the Ryan Medicare proposal would substantially increase total health-care spending.... [C]onsumer-directed health-care reform... may not be the panacea it’s often held out to be. The core problem is that health-care costs are concentrated among expensive treatments for chronic diseases and end-of-life care....
Perhaps the most famous research on consumer cost-sharing is the RAND Health Insurance Experiment, which was conducted with 2,750 families from 1971 to 1982.... The biggest reductions in the RAND study, though, came in moving from zero expense for families to at least some cost-sharing. As we already have some cost-sharing in our current system (co-pays and deductibles), that finding doesn’t suggest a new path to savings. And, unfortunately, the results from raising cost- sharing above current levels were generally more modest.... To save money in the short run, people tend to cut back on crucial medicines.... The CBO’s analysis of the Ryan plan confirms that federal expenditures would be reduced, by a lot. By 2030, payments for a typical beneficiary would be more than 20 percent lower than current projections.... On the critical metric of whether the Ryan plan would reduce total health-care costs, though, the CBO conclusion is shocking: The plan would not only fail to decrease health-care costs per beneficiary, it would increase them –- by an astonishingly large amount.... By 2030, health spending on the typical beneficiary would be more than 40 percent higher under the Ryan plan than under existing Medicare, according to the CBO report. Health-care costs would not be reduced on the backs of seniors; they would be raised on the backs of seniors.... The CBO points to two factors: Private plans have higher administrative costs than the federal Medicare program, and less negotiating leverage with providers.
Everything in life is relative. The CBO’s analysis of the health-reform act that was passed last year was, well, lukewarm on its potential to reduce costs. Compared with the Ryan plan, though, the health reform act comes across as an efficient cost- containment machine....
So here’s the message to those vacillating Republican policy makers: There’s no need to feel guilty about backing away from the Ryan plan for reasons of political expediency. If your goal is to reduce health spending significantly, you can safely retreat from it on its substance.
