Paul Ryan's Less Terrible 2012 Take on Medicare

| Tue Mar. 20, 2012 11:26 AM PDT

As I recall, last year's version of the Paul Ryan voucher plan for Medicare basically amounted to mailing seniors a check each year to pay for health insurance. The value of the check went up at the rate of general inflation, which is much lower than the rate of medical inflation. Within a few decades, this means that the checks would cover no more than half or two-thirds of the cost of insurance, and seniors would be forced to pay huge sums out of pocket. Democrats were unamused.

But here's an interesting thing. A few months ago I linked to a Yuval Levin proposal for Medicare reform that basically told his fellow conservatives to put their money where their mouths are. If conservatives really believe that competition is the key to holding down costs, he said, then let's make Medicare competitive. Levin proposed that each year Medicare would define a minimum benefit level, and then providers in each Medicare region would bid for business. The traditional fee-for-service Medicare plan would be among the bidders, and the second-lowest bid would become the value of a voucher sent to each senior. You could pay more for a more generous plan if you want to, but at all times "there would be at least one option that would cost less than the Medicare benefit, and seniors choosing that option would get the difference back as cash in their pockets; [and] there would be at least one plan that cost the same as the benefit, so that seniors could obtain it with only the same out-of-pocket costs they have today."

At the time, I suggested that liberals might very well be OK with this idea. After all, it's pretty much how Obamacare works. Within the insurance exchanges set up by PPACA, providers engage in competitive bidding based on a minimum coverage package defined by the government. The size of the federal subsidy for low-income families is set at the value of the second-lowest bid.

So here's what's interesting: this is basically what Paul Ryan is proposing this year. He's not quite willing to trust the free market completely, so his proposal also includes a cap on cost growth that's equal to GDP plus 0.5%. This is similar to the growth cap mandated in Obamacare. I have a problem with using this same number for Medicare, however, because it doesn't contain the word "per capita," and the retirement of the baby boom generation is going to increase the number of Medicare beneficiaries at a higher rate than the rest of the population.

Still, it's a start. The basic competitive framework is worth a look. The growth rate formula is negotiable. The regulatory apparatus is negotiable too. It's not prima facie ridiculous.

Now, given the slowdown in Medicare growth over the past couple of decades, along with the cost controls that are already part of Obamacare, I'm not really in favor of adopting a plan like this. I think we should give Obamacare a chance to work instead. Still, Ryan's plan is a step in the right direction. I'll give him that.

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