Grasping the Medicare Distortion

Yuval Levin @ NRO:

It is simply a fact that the United States government is now on track for an unprecedented fiscal disaster — with debt quickly surpassing the size of our GDP and reaching twice that size in the coming decades, crushing any chance for robust growth. It is also a fact that the rising cost of Medicare is at the very heart of that disaster. The program has been growing far faster than the rest of the federal budget for decades, and the trend is only set to accelerate.

According to the Congressional Budget Office, Medicare spending as a share of the economy is five times what it was in 1970, while all other federal spending combined (excluding interest) is 1.1 times what it was. By 2035, CBO expects Medicare costs to be nearly twice what they are today as a share of the economy, while all other federal spending combined will actually decline somewhat as a share of the economy. The debt problem is a Medicare problem. There is no way to avert fiscal disaster without significantly reining in the growth of that program. Even President Obama has acknowledged that no other solution, and certainly not his symbolic class-warfare tax proposals, could be sufficient, saying last July that “if you look at the numbers, then Medicare in particular will run out of money and we will not be able to sustain that program no matter how much taxes go up.”

And yet, even though he acknowledges this fact, the president has chosen to do nothing, and indeed to stand firmly in the way of doing anything meaningful to solve the problem. Obamacare’s Medicare cuts and its board of price controllers aren’t a solution — the CBO debt and Medicare growth numbers cited above already include them, and the agency (along with Medicare’s actuary, who works for the president) has said they are very unlikely to work. What is needed is a structural reform of the program, to enable it to deliver coverage to seniors far more efficiently by driving more efficient delivery of care. But seniors who are now in the program don’t want to hear that it’s going bankrupt, and don’t want to think about changes to it, so the politics of Medicare argue strongly against any kind of solution. The president and his party have chosen to make the most of that political reality, quietly raiding Medicare to fund Obamacare but otherwise leaving the program to its sorry fate. They have denied the need for reform. It would take real political courage to do otherwise.

To their enormous credit, congressional Republicans over the past few years have decided that they cannot leave Medicare to collapse and take the government’s finances (and the nation’s economic future) with it, and so they must address the problem despite the standing threat from the left to demonize anyone who tries. Thanks to the creativity, tenacity, and flexibility of Paul Ryan in particular, they have worked through several different versions of a market-based reform of the system, and earlier this year they arrived at one that effectively addresses the key concerns of past critics of such “premium support” reforms — an idea that could dramatically improve the efficiency of Medicare (and so reduce its cost) without increasing risks or out-of-pocket costs for beneficiaries.

Because Mitt Romney (to his own enormous credit) has endorsed that reform, and because Paul Ryan (its architect) is now Romney’s running mate, this idea will come under blistering attacks in the coming weeks and months. Medicare will not be the central issue of this fall’s campaign — economic growth and jobs are far more important to voters. But President Obama and his supporters seem intent on distracting voters from the failed economic policies of the past four years by scaring them about the Romney-Ryan Medicare reform. And it is already perfectly clear that their criticisms of that reform are based on either a misapprehension or an intentional misrepresentation of the actual proposal, and of the very significant ways in which it differs from past Medicare-reform ideas (including those proposed by Ryan in the past). So it is worth taking a moment to understand the proposal — generally known as the Ryan-Wyden reform after its originators, Paul Ryan and Democratic senator Ron Wyden of Oregon — and to see what its critics are missing or misrepresenting.

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