JONATHAN COHN APRIL 4, 2011
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House Republicans are still finalizing their formal blueprint for government spending over the next ten years. But, on Fox News Sunday, Budget Committee Chairman Paul Ryan confirmed what several media outlets reported last week: The Republicans will propose to transform Medicare from a government-run program into what most people would call a voucher system. They will also propose to convert Medicaid from an entitlement to a block grant.
These would be huge, controversial changes. And while Ryan says his party is actually trying to “save Medicare [and] save Medicaid,” I know of at least one person who would be skeptical: Lyndon Johnson.
Johnson was the president who, in 1965, signed the legislation creating Medicare and Medicaid: “No longer will older Americans be denied the healing miracle of modern medicine," Johnson said at the signing ceremony. "No longer will illness crush and destroy the savings that they have so carefully put away over a lifetime so that they might enjoy dignity in their later years.”
Read those quotes carefully, because they spell out the covenant that Johnson made with the American people on that day: A promise that the elderly and (certain groups) of the poor would get comprehensive medical insurance, no matter what.
Will the new Republican plan faithful to that covenant? We haven’t seen the details, obviously, so it's impossible to know. But Ryan told Fox News that the proposal for Medicare will be very similar to the one he crafted with Alice Rivlin, former director of the Congressional Budget Office and then the Office of Management and Budget.
The Ryan-Rivlin plan is a form of “premium support”: If it became law, the government would, starting a decade from now, provide each senior with a sum of money, payable toward the purchase of an insurance policy. (Seniors already on Medicare when the plan took effect could remain in the traditional program.)
Ryan insists the new Republican plan is not a voucher scheme per se, because of how the money would get from the government to the insurers. He also says private insurers are more efficient than government programs. Those are debatable propositions, but put those issues aside.
The key question is whether the new scheme would make the same guarantee of comprehensive, affordable coverage that Medicare does. The answer would seem to be no. Princeton University economist Uwe Reinhardt, among the most respected health care experts anywhere, explained the distinction while analyzing the Ryan-Rivlin plan for the New York Times:
Under the Ryan-Rivlin plan, Medicare would be changed from the defined-benefit plan it has been since its inception to a defined contribution plan.
Under the defined-benefit plan, the government promised to procure specified medical goods and services for Medicare beneficiaries, as medical necessities assessed by the beneficiary’s physician. That puts the risk of escalating costs for that health care mainly onto the shoulders of taxpayers, although Medicare beneficiaries share in these costs through premiums for Part B of Medicare (chiefly physician services) and co-payments at the time of service.
Under the defined contribution approach envisaged by the Rivlin-Ryan plan, most of the risk of future health-care cost increases would be shifted onto the shoulders of Medicare beneficiaries. This feature makes the proposal radical.
The situation with Medicaid is a bit different, because it is a federal-state partnership. Washington provides most of the money and sets most of the rules, while states actually manage the program. But Medicaid, too, is based on a promise: The promise that anybody who qualifies for the program because of low income will get a comprehensive insurance policy.
If Ryan has his way, would the government keep this promise? Again, there's no way to be sure right now. But, on Fox, Ryan confirmed that he and his fellow Republicans would propose to change Medicaid from an entitlement to a block grant--which, as I noted on Friday, means giving the states a lump sum of money, with much more freedom to spend the money as they choose. If a state decided to offer less than comprehensive coverage or to limit enrollment below federal guidelines, it would presumably have the power to do it.
This isn’t my opinion, by the way. It’s the opinion of most analysts who have looked at the Ryan-Rivlin plan. Here is Paul Van de Water of the Center on Budget and Policy Priorities:
Under the Ryan-Rivlin proposal, Medicare beneficiaries would no longer have access to a guaranteed set of health benefits but would instead receive a voucher to be used to purchase private health insurance. Similarly, the federal government would no longer pay a specified share of states’ Medicaid costs but would pay each state only a fixed amount, or block grant. The amount of the Medicare voucher and the Medicaid block grant would grow less rapidly than costs and hence would become increasingly inadequate over time
Ryan says drastic changes are necessary because, if current trends continue, the financial burden of Medicare and Medicaid will exceed our willingness to bear it. He’s almost surely right about the financial burden. Allowed to grow at present rates, without reform, the cost of Medicare and Medicaid will require us to devote more and more tax dollars and, indirectly, more and more private health care dollars--well beyond the point most Americans would consider reasonable.
But there are other, more balanced ways to make Medicare and Medicaid more affordable--ways that incorporate the more redeeming features of Ryan-Rivlin, perhaps, but only alongside reforms that attack the root causes of higher medical spending while preserving the fundamental promise LBJ made in 1965. There are even ways to do it with a voucher program, although it wouldn't be my first (or second) choice.
But is that what the Republicans intend--to keep America's promise to seniors and to the poor? Based on Ryan's latest statements, it seems unlikely.
Update: I made some minor edits for clarity.
18 comments
Well, it would seem the Democrats have a campaign theme written for them. This is what they meant by "saving" Medicaid and Medicare (show some white people being denied care, and a doctor pointing at a sign that says "You have exceeded the Republican Medicare limit"). Do you have the savings the survive what the Republicans will do to your Medicare? Has the benefit of being considerably more honest than a certain parties' rhetoric in 2010, but the disadvantage of taking more guts (or the raw desire to win) than the Dems have demonstrated in recent years.
- Nari224
April 4, 2011 at 1:38am
What really bugs me about this article is that you do not attack the fundamental line that Ryan cares about the deficit. He could care less about the size of the deficit or the government budget. What he cares about is overtaking effective government programs and replacing them with rapacious private ones for the thieves he represents.
- keepin_on
April 4, 2011 at 2:07am
Take one giant step backwards. If they are going to take away medicare, employers will need to increase wages to compensate people who will need to spend more on health insurance one way or another now or later or go without. Workers will need more money just to live, which is the problem Medicare was supposed to solve. More industries will move to either Canada or Mexico. Here comes a smaller piece of a smaller pie.
- Nusholtz
April 4, 2011 at 7:54am
Wow, looks like Obama can use Clinton's M2E2 again. The old times look just like the new times, and defending Medicare, Medicaid, Education, Environment are once again Democrat roles.
- AllanL5
April 4, 2011 at 8:02am
The Republicans are using a financial crisis of their own making to undo policies they have never liked.
- paskunac
April 4, 2011 at 10:43am
I understand the theory that voucherization will somehow increase efficiency and bring down costs. But when the facts don't bear it out, you'd think that people would realize that the theory is wrong. Despite competition in the private market, administrative costs are far higher than in Medicare--something on the order of 20-25% of each dollar in premiums versus maybe 5% in Medicare. So giving Medicare recipients vouchers for private insurance amounts to up to a 20% cut in actual service right off the bat. And our peer nations, with their various forms of highly regulated medical and insurance services, obtain comparable health outcomes to ours while spending nowhere near the amounts that we do. They've managed to control costs (though they struggle with that too) and maintain care; we have not. Yet these examples both here and abroad fail to shake the ideologically driven belief that voucherization/privatization will somehow drive down costs and provide adequate care for all. The failure of reality to make an impression on these folks is truly amazing. Of course, if they just don't think people should benefit from government programs, they should just admit it and then we can have a real debate on the topic instead of going through these policy gymnastics.
- dsimon
April 4, 2011 at 11:23am
dsimon simply does not understand free market dynamics. US care costs more than socialized medicine because US citizens are unaware of the true costs of health care and thus over consume. Using vouchers would expose consumers to the true costs and thus they would no longer waste resources, only buying necessary medical care. The only reason that socialized medical systems provide cheaper care is by rationing and death panels. Of course it goes without saying that the poorer you are the more medical resources you waste so it is important that medical care be rationed in the US by ability to pay.
- tpinter
April 4, 2011 at 12:49pm
How many Americans want to see the insurance industry become even more powerful than it already is? One of the worst parts of being ill is dealing with insurance companies. Why would Americans want to buy into this, especially when we're older, sick, disabled? And why would ANYBODY trust the states with block grants, in view of what some states have been up to recently? Also wouldn't this (vouchers) just increase the paperwork and administrative component bigtime?
- Sophia
April 4, 2011 at 2:15pm
tpinter is right to point out that the main reason we pay perhaps 50% more for arguably less in healthcare than comparable countries is due to the illusion that the costs are covered by other people's money. The Iron Triangle of Big Government, Big Healthcare, and Big Insurance have been passing the buck in a circular fashion for decades, leading directly to the upward spiral of costs that are going to bankrupt the nation minus serious reform.
- Robert Powell
April 4, 2011 at 3:52pm
I thought tpinter's post might be in jest, but since Robert Powell is taking it seriously, so will I. "dsimon simply does not understand free market dynamics. US care costs more than socialized medicine because US citizens are unaware of the true costs of health care and thus over consume." That's simply not true. I understand free market dynamics, but people don't consume health care the way they consume other goods and services, so traditional market theory does not apply. If you make colonoscopies free, I'm not going to schedule a bunch of unnecessary colonoscopies. Wealthy people, who can consume as much health care as they want, don't go around saying "Gee, I don't want to play golf today, I think I'll make a doctor's appointment instead!" There are plenty of reasons not to see your doctor: it's time-consuming and generally unpleasant. If cost is a disincentive, it often means you're not going to see your doctor when you should, resulting in greater expenses down the road. My understanding is that people in France don't see their doctors any more than we do, they get a full choice of treatments, and they don't automatically choose the most expensive ones. So the overconsumption effect simply doesn't occur in large part in practice, even if traditional market theory says it should. "The only reason that socialized medical systems provide cheaper care is by rationing and death panels." Well, that would be a nice story if it were true. Some systems explicitly ration (Britain), but most do not (France). We ration too, we just do it badly (based on income). And other systems do just as well as we do in terms of health outcomes, which would be hard to explain if they were withholding necessary care and going around killing people. Again, when the facts seem to show different results than the theory dictates, then there's something wrong with the theory. And the problem with market-based health care theory is that health care markets are not traditional markets and don't follow their rules. Pretending that they do can make the situation worse, not better.
- dsimon
April 4, 2011 at 4:02pm
Not sure about overconsumption, but I am sure that, at the margins, doctors will do the extra but usually unnecessary test because they are afraid of legal action. Tort reform must be done state by state, unfortunately, but it needs to get done. It is a real cost driver, and leads to overconsumption. Not the one dsimon refers to - of course no one goes to the doc if they are healthy - but the overconsumption that results when docs are afraid of being sued.
- butchie b
April 4, 2011 at 4:50pm
butchie b: My understanding is that defensive medicine is not the main driver of our excessive health care costs. But it is nevertheless a small factor, and if so then there's not much of an excuse for not addressing it. I think a far bigger factor is fee-for-service, which encourages everyone in the system to do more, instead of a more results-based compensation system.
- dsimon
April 4, 2011 at 5:12pm
Agreed that fee for service is a much bigger cost driver. But we've already tried the alternative of capitation back in the 80s/90s and nobody liked that, either. But I'm game to try it again, maybe with better metrics.
- butchie b
April 4, 2011 at 5:25pm
I was going to ask how all the oldsters who panicked at the thought of the way the ACA might change Medicare and thus voted Republican are going to view this, but then I thought, "uh oh -- if their understanding of the situation is 'keep the government out of my Medicare,' this might be an easier sell."
- frippo
April 4, 2011 at 5:38pm
Oh, now I see, of course, that there's another post today on the subject of the oldsters. So it's more about "I've got mine" than actual ignorance of how it works.
- frippo
April 4, 2011 at 6:06pm
butchie b: I'm not well versed in how capitation worked (or didn't) before. But the stats from our peer countries are striking, and if they can spend so much less on health care than we do, cover everyone, and get comparable results, then I see no inherent reason why we couldn't do the same (there are a variety of structures to choose from). I highly recommend T.R. Reid's book "The Healing of America" for those interested in learning about the subject; it's a pretty easy read. But regardless of whether capitation or some other method might be a plausible route, I think the evidence is clear that traditional market theory doesn't apply to health care. Decreased cost does not necessarily lead to overconsumption (yea, free surgery, I think I'll take five!), market cost can be a disincentive for getting proper preventative care and increase expenses (sometimes dramatically), and competition can bid up prices instead of lowering them. I like markets, and I think they work well most of the time, but it's important to admit that they may not get the results we want in every field, and health care may be one of them.
- dsimon
April 4, 2011 at 7:33pm
Health care is definitely not an area that works well with uncontrolled markets unless we are willing, as we are not, to ration healthcare by williingness and ability to pay, the way we do it with every other good. If we will not allow the market to ration care and control price, there is only one other means so far invented to do so: government. See, e.g. France. The whole point of single-payer is not that one entity writes the checks but that that entity is a monopsonist that controls prices and consumption. There is no third way.
- roidubouloi
April 5, 2011 at 1:04pm
Perhaps there is. I'm thinking of a Medicare plus - that is, the government could pay for most of the regular care, with rationing per roi, but people would have the ability to buy a higher level of care on their own. We're a long way from that, and even from single-payor.
- butchie b
April 5, 2011 at 3:17pm