Once again, I am gobsmacked. David Brooks writes an entire column today about the Romney/Ryan plan to voucherize Medicare, and the whole thing goes like this:
The second approach is to replace the fee-for-service system with more normal market incentives. Give recipients a choice among insurance options and have providers compete to offer comprehensive coverage like today’s Medicare….Paul Ryan wrote his own version a few years ago and has come up with a more moderate version with Senator Ron Wyden, a Democrat.
….There are serious health economists who scoff at market-based strategies. Others just don’t know….The Romney-Ryan approach might work. If it doesn’t, the federal budget would suffer but seniors wouldn’t. Today’s seniors would be left untouched anyway, and tomorrow’s would have the option of private plans or traditional Medicare. At worst, if the market approach flopped, we’d be back to where we started.
As usual, there isn’t a single word in this column about the most important feature of the Romney/Ryan plan: it arbitrarily limits premium growth to GDP + 0.5% per year.
Now, there are good arguments for imposing a cap like this. But one thing you can’t say is that it’s a market-based approach. If you had to pick just one single thing that distinguishes a market-based economy from any other kind of economy, it’s the principle of using competition to generate a price signal. If you don’t generate a price signal, it might look superficially like a market, but it’s not.
In the Romney/Ryan plan, the government sets the price it will pay for Medicare coverage and then asks private providers for bids. It’s true, as Brooks says, that competition among providers might help reduce prices a bit, but by far the heaviest lifting is done by the government-mandated price cap. That’s central control every bit as much as any panel of bureaucrats that Barack Obama has ever proposed.
I just don’t get it: how can conservatives repeatedly write about the Romney/Ryan Medicare plan without ever mentioning the price cap? It’s as if they don’t even realize it exists, and don’t realize that both Romney and Ryan have been studiously unwilling to say what happens if insurers can’t meet the cap — which they probably can’t. Does the cap go up? Do seniors pay the difference? No one knows. If the latter, then it’s decidedly untrue that “seniors would be left untouched” if it fails.
But one thing we do know: the cap exists, and it’s by far the most important part of the plan. There sure seems to be a mighty widespread conspiracy to keep it a little-known secret, though.
UPDATE: Andrew Sprung emails to tell me that although Paul Ryan’s Medicare plan includes the GDP + 0.5% spending cap, Mitt Romney’s plan doesn’t. The Boston Globe quotes one of Romney’s advisors saying: “Governor Romney has never proposed a cap on premium support growth that would leave seniors without the assistance they need to afford a plan with coverage at least as good as today’s Medicare.”
I’m not sure what to think now. Romney’s plan, as outlined on his website, is vague to the point of meaninglessness, but I thought he had endorsed Ryan’s cap. Now he says he doesn’t. So I guess Brooks is off the hook on this.
However, this also makes Romney’s plan laughably incomplete. I don’t think there are any serious analysts anywhere who think that competitive bidding all by itself will hold down Medicare costs. Without some kind of additional structure, this is just fairy dust.