Commentary & Opinion
3:45 pm
Thu August 23, 2012

Michael Waldholz - The Ryan Plan v. Obamacare

Mitt Romney just tossed Medicare front and center into the presidential campaign with the selection of Paul Ryan as his running mate. It is the most unexpected development yet in this political season.

What’s especially surprising is that Paul Ryan’s plan to turn Medicare into a voucher program is being discussed as if it is a viable option. But its really a waste of time. Let’s call it what it is: a rhetorical bit of ideological hogwash designed to fire up the Republican party’s conservative base. Romney himself has disavowed it, saying he will unveil his own plan before the debates, and Ryan has described his approach merely as a way to jump start ``an adult conversation.”

Yes, Medicare, the government’s medical insurance plan for the elderly and disabled, needs to be changed. The cost of the program is expected to double to almost a trillion dollars a year over the next decade. And there are plenty of ideas out there, including some in President Obama’s new health law. But the voucher approach, giving people a set amount of money to buy their own insurance, is a fantasy.

One of Medicare’s principal flaws, not addressed by Ryan, can be stated in just three words: fee-for-service. Hospitals and doctors are paid based on the number of procedures they perform, and they charge a fee for each of those services. This encourages providers to attack disease with an arsenal of high cost and often-unnecessary tools. While this may be ok for treating younger and healthier Medicare beneficiaries, treating the multiple ailments of the elderly and frail this way is a major driver of rising costs.

In the past few years Medicare has tried to rein in spending by contracting with private insurance companies that offer the elderly an array of benefits richer than what’s in the traditional plan. These so-called Medicare Advantage plans receive an annual per-capita payment by the government. By limiting the use of excessive testing, referrals to high-priced specialists and restricting care to a network of providers who discount their services, insurers can profit by providing care for less than what the government pays them. Insurers have done well in this business. So well that Obama’s new health law proposes to save money by reducing these annual payments.

Ryan, on the other hand, says a voucher plan will save money by unleashing competition among insurers.
Here’s the catch. To avoid upsetting seniors, Ryan is proposing that the voucher system not go into effect until 2022. That’s 10 years from now and has the effect of kicking the problem down the road.

And, by the way, anyone who wants to can use their voucher to stay in the government’s existing fee-for-service program.  

Key to its success is the expectation that insurers are willing to enter this business. But it’s just as likely that profit-minded insurers will have no incentive to recruit people in their 80s and 90s who generate the bulk of Medicare’s costs. Those folks will likely have no choice but to remain in the government’s traditional fee-for-service plan, though its also unlikely Ryan’s voucher will cover premiums the government would need to charge. In other words, costs to consumers for insurance premiums will likely rise but nothing else will be done to reduce overall spending.

Obamacare will try to reduce spending by limiting unnecessary care. Critics say this means some government bureaucrat will decide what doctors should do.  Ryan’s plan does nothing more than hand off that responsibility to bureaucrats in the insurance industry.

There are many innovative ideas to control Medicare spending. Ryan’s plan is not one of them.

Michael Waldholz is a Pulitzer Prize-winning journalist who has worked for the Wall Street Journal and Bloomberg News. He lives and writes in the Hudson Valley.
 

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