Mitt Romney’s choice of U.S. Rep. Paul Ryan as a running mate has shaken up one of the most dismal presidential races in memory. People may not agree with the Wisconsin Republican, but in recent years he has been willing to stick his neck out with more specific policy recommendations than either his running mate or Barack Obama, especially when it comes to reforming big entitlement programs like Medicare and Medicaid.
Understandably, these programs are becoming the focus of much haranguing, largely because Democrats sense that Ryan’s proposals don’t sell well with the general public. In particular, they get a bad reception among people already on Social Security and Medicare, no matter how strongly they are told that any changes will only apply to younger age cohorts. This is a long-established phenomenon and one that Democrats repeatedly have used to their advantage with cries that one Republican or another “will take away your Medicare.”
This demagogy, along with parallel Republican talk about Democratic candidates who “are going to raise your taxes” is the central tragedy of American politics right now. Substantive debate about real trade-offs in public policy is at the lowest point in decades. Discussion of Ryan’s health program reform proposals are just the latest example.
The congressman proposed converting Medicare from a government-run, single-payer system to a program based on vouchers. Instead of a government program paying whatever medical expenses are covered under Medicare rules, beneficiaries would instead receive a voucher they could use to buy health insurance from competing private companies. (Advocates now use the euphemism “premium support” because the word “voucher” itself is thought to have negative connotations among voters.)
Ryan went on to propose the initial voucher amount be set at current per-person outlays for traditional Medicare and that this be adjusted annually by the change in a price index for medical care.
The nonpartisan Congressional Budget Office, or CBO, studied this and concluded that over the longer run — by 2020 or 2030, for example — people on the new plan would pay substantially higher amounts out of their own pocket compared with what they would pay under the current fee-for-service Medicare. These projections are what the Obama camp is using to assail Romney and Ryan.
The CBO does a good job, and the projections probably are as accurate as any made over such a long time horizon. But they inevitably are made subject to many assumptions, most of which won’t turn out to be true as events unfold. Remember that we were sold tax cuts in 2001 because if we didn’t, the national debt would be all paid off by 2012 and that would have dire consequences!
Ryan’s proposal to switch to a voucher system and his proposal for determining the specific values of such vouchers are two separate policy issues. Each should be considered by itself.
There are good arguments for vouchers. Switzerland has a national health insurance system not all that different from what Ryan proposed. The system in the Netherlands has similarities. The government ponies up an amount for basic health insurance for everyone, but each household chooses its own policy from competing private insurers. There are incentives for market forces to keep down prices.
It isn’t magic. Switzerland spends a higher proportion of its gross domestic product on health care than several other European countries, although still less than the U.S. Political pressures always exist to raise the amount of the basic voucher. And concerns have been raised that the wealthy can buy supplemental insurance out of their own pockets to cover more services, while the poor cannot.
On the whole, however, the systems in Switzerland and the Netherlands are more sustainable fiscally than Medicare.
Remember that under current Medicare, the people now obtaining benefits will receive about two to three times the actuarial value of what they paid in over their working lives. With no increase in Medicare taxes in 27 years, with medical technology increasing apace and with about 79 million baby boomers retiring, this is not sustainable. It is a wonderful welfare program for current seniors — hence its politically sacrosanct status. But it is hugely unjust to succeeding generations.
Ryan himself proposed other ways of setting voucher amounts, including a “Vickery auction,” in which insurers would submit bids for basic coverage. The voucher amount would be set at the level of the second-lowest bid. (This is similar to the way interest rates on Treasury Bills are now determined.)
I don’t argue that Ryan’s Medicare proposals are the best option. Much of the cost- savings are as founded in wishful thinking as his tax proposals. But his ideas are serious ones that merit serious discussion, not the mindless demagoguery that opponents are tossing out.