Ryan’s Plan

Rep. Paul Ryan (R-WI) has proposed a Medicare reform plan that is being contrasted with the approach adopted by the Patient Protection and Affordable Care Act (PPACA), what some people call ObamaCare. Even though Republicans are backing away from the plan, it is the centerpiece of the House Republican budget. It’s also attracting a lot of criticism from the Obama administration and from left-of-center commentators. For example, Health and Human Services Secretary Kathleen Sebelius says it will cause seniors to “die sooner.”

Both ObamaCare and Paul Ryan propose very large cuts in Medicare spending — cuts that will continue indefinitely into the future. As I said in a previous post, neither plan has a serious proposal to slow the rate of growth of health care spending overall. So under both plans, the amount that the federal government will spend on care for the elderly and the disabled will fall further and further behind what everybody else is spending. (See the spending charts here.)

Someday We’ll Be Together

Looking indefinitely into the future, the approach of ObamaCare is to continue to squeeze the providers. Fees paid to doctors and hospitals would grow at roughly half the rate of growth of fees paid by BlueCross and everyone else. Ironically, for the next decade Ryan’s approach pretty well follows the ObamaCare path. But from that point on, it diverges and allows doctor and hospital fees to be determined in the marketplace. Ryan would limit instead the amount Medicare pays to private insurers, who would operate much like Medicare Advantage plans operate today.

Of the two approaches, Ryan’s is definitely better — once you get past the first ten years. Obama’s approach relies completely on something that has already been tried and failed: price controls. Ryan (at least eventually) would allow market forces to have greater sway. Under Ryan’s approach, doctors and hospitals would be free to offer different bundles of services that meet needs that are now going unmet. For example, they could offer primary care combined with telephone and email consultations, same day appointments, entrées to specialists, etc, much as “concierge” doctors are offering today. Under the Obama approach, however, everyone would be stuck with the basic dysfunctional system we currently have — with Washington dictating what services Medicare will pay for and how much.

Even so, there will be fewer federal dollars available for senior medical care, relative to trend, under both approaches. One of two things can happen. Either seniors will supplement the reduced federal payment by paying more out of their own pockets, or providers will have to provide lower-cost care. This latter possibility will certainly mean fewer amenities (e.g., no private rooms, fewer inpatient menu choices, etc.) and will also probably mean a lower quality of care.

To prevent this unpleasant outcome, both plans need three things neither plan has. First, they need a way for young people to save, tax free, during their working years so they have funds set aside to supplement the federal government’s increasingly smaller contribution. Second, both plans need to start freeing the Medicare system immediately — encouraging doctors and hospitals to repackage and reprice their services so that care can be provided more efficiently. Finally, both need to do something Capitol Hill has resolutely resisted year after year: pass the kind of reforms that will reduce health care spending overall.

On the sociology of reform, what can I say? Columns by Alan Blinder, Paul Krugman, Ezra Klein, Uwe Reinhardt and others excoriate Ryan and his colleagues because the proposed Medicare “premium-support credits” would be indexed to consumer inflation, not health costs. Yet the ObamaCare Medicare plan also has spending growing at a rate well below overall health care costs and these same columnists have uttered not a peep of protest about that in the year since its passage. On the other side are columnists who can offer only praise for Ryan.

It’s hard to escape the conclusion that quite a few op-ed writers and bloggers are more concerned with doing the bidding of the two parties rather than finding workable solutions to difficult problems. Gail Wilensky and Timothy Jost are two of the very few commentators with a balanced approach.

Health reform ideas are good or bad in their own right. They do not become more or less desirable because of the people or political parties who support or oppose them.

Comments (23)

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  1. Joe Barnett says:

    Excellent analysis! It is indeed strage that cuts in projected Medicare spending aren’t cuts at all, under the ACA, but are cuts when proposed by Ryan.
    Everyone appears to be suspicious and skeptical– about the other guys’ numbers.

  2. Devon Herrick says:

    The mechanism for cutting Medicare changes with political affiliation. The Ryan plan would have seniors themselves take the lead and shop for coverage that meets their needs. By contrast, the Affordable Care Act requires deep cuts to Medicare provider fees that virtually all Members of Congress know are unlikely to occur.

    Both parties need to get together and find workable solutions to slow the growth in Medicare spending in ways that do not harm seniors.

  3. Kenneth A. Fisher, M.D. says:

    I would add that health savings accounts would have to begin at an early age (childhood) and accumulate throughout life tax free. Each generation must accrue the funds to pay for its benefits.

  4. John Polgar says:

    Markets are amazing things. Too bad neither proposals gets there quicker.

  5. Anne Alice says:

    I do appreciate the effort you’ve made here to present a perspective from both sides. Now, if we could just get a majority to agree on something.

  6. Ian Kodanik says:

    Kudos to you for your analysis, and for recognizing Wilensky and Jost. Continuing to forestall the move to market-based, consumer-focused delivery of medical care is simply kicking the can down the road to preserve guaranteed markets and monopoly, or at least oligopoly, prices for third parties at the expense of patients and consumers. If we say we’re in this for the benefit of all, why do Krugman, et al., insist on protecting the few? Inquiring minds want to know.

  7. Erik says:

    FTA:
    “Looking indefinitely into the future, the approach of ObamaCare is to continue to squeeze the providers.”

    Doctors will continue to be the target for price reduction as they are the main driver of medical inflation. As I stated before the medical profession will be deflated.

    Case in point.
    A month ago my spouse went to her OB/GYN and paid cash. Turns out the medical group charged our insurance anyway. We only found out when we received our EOB’s saying we owed the medical group additional copays. We contacted the billing department of the medical group and demanded an audit or we were going to notify the insurance company of the double billing. The billing department actually told my spouse “don’t you think you should owe something?” This is after we already paid in full with cash! It all ended this last Friday when we received a refund from the medical group of about $200 dollars.

    This is even after I was overcharged for a surgery (that was actually a post cancer, surgical head & neck check-up) that never took place. I am still working on that one.

    Doctors need to be taken to the shed till they reform thier business practices.

  8. Al says:

    If as some economists have mentioned that an appropriately managed Medicare could spend 30-50% less without affecting quality it really shouldn’t be that difficult to reduce costs. What is different today than we saw when healthcare costs represented half of what they do today? The number of mouths at the trough, perhaps? Note how the power has shifted to some of these mouths that almost didn’t exist years ago. Note how much power many of these mouths wield yet they do not produce medical care. Doctors produce medical care yet they seem to be considered the least important element in the reform process other than government’s desire to control them and prohibit them from acting in the market police.

  9. Harry Cain says:

    John, I’m startled by your choice of music! “Someday we’ll be together” ? You’re expecting Hell to freeze over? I’m afraid that before any really serious, constructive reforms of Medicare can happen the public, especially the beneficiary population, will need (a) a much better education in how badly designed Medicare actually is, how it has compounded our cost problems, and (b) a big adjustment in expectations, such that we will no longer expect we can have anything we want in health care and someone else will pay for it. Neither of those developments is on the horizon. True, it’s the politicians and commentators who will demagogue this thing, but it’s public attitudes that let them get away with it.

  10. Alexis says:

    I expect they will cooperate a some point, for example, when we are in a debt crisis. Short of that, I can’t see how all parties will come to the table.

  11. Greg Scandlen says:

    I wish I could be so optimistic — that “someday we’ll be together.” But with every passing month it gets less likely. I’m afraid the intellectual elite has made such a hash of it that they are too defensive to face the facts. I agree with Harry Cain but would say that the way to get “public attitudes” to change is to treat “the public” like adults and let them (us) make our own decisions about how best to spend our own money. That won’t happen until the house of cards collapses and the elite is out of power and out of jobs because they add nothing of value.

  12. Ron Bachman says:

    I love Paul Ryan, but the politics of projecting reductions in Medicare beyond the ObamaCare reductions does not seem very prudent. First, it supports ObamaCare reductions in provider reimbursements which are as likely to occur as the reductions proposed before and negated by constant short term fixes called the “doctor fix.” Second, going beyond those reductions after 10 years means taking a lot of political fire now (foregone election victories?) for a reduction that will probably never occur anyway.

    The Ryan-Rivlin plan is a better approach along with other Medicare reforms that support increased personal responsibility, Medicare HSAs, and packaged pricing to get away from pure activity based fee for service pricing.

    Growing Medicare Advantage, eliminating the need for Medigap, and promoting longer healthier living is more likely to generate the savings we are all trying to achieve. A good book to read is “The Blue Zone” for 10 years of longer productive life and a less expensive passing.

  13. John R. Graham says:

    There is another element that makes Ryan’s plan superior to Obama’s, but it is macro indirectly related to health care. The tax hikes of Obamacare will slow economic growth and productivity, therefore leaving seniors’ retirement incomes less than if Obamacare is repealed.

    In any plausible future, seniors will need to use more of their own money to acquire medical goods and services that the government will not provide. So, any policy (like Obamacare) that reduces their retirement income will harm their health care.

    What is valuable about Dr. Goodman’s chart is that it shows that there is no way that Medicare “as we know it” can exist for much longer. Therefore, polls that ask people whether they support Ryan’s changes or the current system are as idiotic as surveying passengers on the Titanic (after it’s hit the iceberg) about whether they’d like to dine from the same menu as last night or try something different tonight!

  14. Bob Geist says:

    The best solution to Medicare was done by Greg Scandlen and Phillip l. Gausewitz: Bringing Health Savings Accounts to Medicare. September 28, 2005. Google “HSAs in Medicare, Scandlen”. Bob

  15. John Goodman says:

    @ Ken Fisher

    Agree. We will need a lifetime of saving.

    @ Erik

    All docs are rip off artists because you had one bad experience?

    @ AI

    It is one thing to say there is 30% waste in the system. It is quite another to find it and get rid of it. It’s like the advertiser who says “half the money I spend on advertising is wasted. I just don’t know which half.”

    @ Harry Cain and Greg Scandlen

    Optimism is healthier than pessimism.

    @ Ron Bachman

    To say that the Ryan plan was not prudent is a huge understatement.

    @ John Graham

    I like you Titanic metaphor.

    @ Bob Geist

    If Greg and Phil wrote it, Im sure it is very good.

  16. Al says:

    Thanks for your comment John: “@ AI It is one thing to say there is 30% waste in the system. It is quite another to find it and get rid of it. It’s like the advertiser who says “half the money I spend on advertising is wasted. I just don’t know which half.””

    In this case we know the location of a good deal of the wasted money. How did National Health Labs a million dollar company grow into a billion dollar company with a single change in the law? Why is durable medical equipment paid for and used when it isn’t medically necessary and the costs can exceed costs those normally paid in the market place? Has managed care really saved any money at all? Initially it may have sped up the decrease in hospital stay, but it only reduced the cost of hospitalization for the least expensive days while at the same time led to readmissions and poor care for the elderly and sick poor. It was only a matter of time before hospital stays were reduced? Why were they so long in the first place and why did the hospitalizations all end at almost the same length of stay? Why do physician costs have a 20% co pay, but laboratory costs don’t? Why do we prevent out patient surgical centers from being opened when they bring the cost of health care down?

    The list can go on and on. It appears there are too many mouths feeding at the trough of Medicare which has been politicized just as predicted. The appetites need to be curtailed.

  17. Lowery Thompson, MD, FACP says:

    Two ways to reduce health care spending:
    1. Free market; no government subsidies at all either trough vouchers (paid by tax dollars) or income tax credits (decrease tax collections)
    2. A two tier system:
    A. See #1.
    B. A safety net system for those who cannot or choose not to obtain care through A.
    1. Each state would adopt a budget for healthcare paid for with state tax revenue. No federal money (or control) would be available.
    2. All providers would be capitated based on the money available for healthcare in a state.
    3. Providers who took care of “safety net patients” would be protected against malpractice claims under each states “Tort Claims Act”.
    4. Every person who chose to access the safety net system would have to document that they were a citizen of that state. People could “vote with their feet” and move to any state they wished.

  18. Erik says:

    John,
    I have had several. A few days ago I also posted about a doctor who attempted to charge me for a surgery when it was actually a cancer head and neck surgical consultation follow-up. I am still working on that claim.

    So I do think the profession has become too much a money grubbing enterprise and it is going to affect the profession in negatives ways.

    As the old adage goes: Pigs grow fat, hogs get slaughtered.

  19. Lowery Thompson, MD, FACP says:

    @ Erik

    It is with great sadness after 40 years of medical practice, but I could not agree more

    Dr. T

  20. Al says:

    Dr. Thompson, in every barrel there are always some bad apples. We expect Doctors to be perfect, but they are humans. By far I have found Doctors to be better than average regarding their basic commitments. It is unfortunate that a few tarnish the majority, but quite frequently claims of this nature are distorted making the Doctors image worse than it should be.

  21. Lowery Thompson, MD, FACP says:

    @ Al Thank you for your encouraging words. Cheers, Dr. T

  22. Linda Gorman says:

    Erik,

    In questioning your bills you’re part of the solution and helping everyone. It’s a pain but it gets practices out of their rut. Thank you.

    I paid cash at a hospital chain one time and ended up getting sent to collections because they thought I’d only paid half my bill–the discount was that large. Let it ride for a while in the name of research but finally had to make a bunch of phone calls to protect my credit rating.

    Hasn’t happened since. And I’ve bought the same service. Maybe someone fixed the software. Here’s to progress!

  23. Ron Bachman says:

    John, glad you agree with me that Ryan has put the republicans, who support his roadmap, in an untenable position and that the Medicare reductions beyond ObamaCare that he proposes put the rest of his plan (with many great ideas) behind a wall of Medicare controversy that will hurt all republicans and hinder a discussion on those positive aspects of his plan. Love you Paul – but…