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Senator Ron Wyden (D-OR) and Rep. Paul Ryan (R-WI) have just unveiled a new Medicare reform plan that purports to be a bipartisan “third way” that would give both political parties what they want:
Or so the authors claim.
In response to this development, some in the Washington conservative establishment are hailing the plan as a policy breakthrough, a milestone event, and a political coup for Republicans that provides the basic ingredients of, and moves us closer to, needed Medicare reforms. Because of this bill, in 2012, some of these conservatives seem to hope, Democrats won’t be able to use demagogic “Mediscare” tactics against Republicans. Sen. Wyden, they believe, has graciously provided the GOP with a political shield.
While I have a great deal of respect for these conservatives, I must confess I find this view extremely optimistic.
Indeed, I fear it’s not the brainy Ryan who has pulled off a coup, but rather the wily Wyden, a dyed-in-the-wool progressive who makes no secret of wanting single-payer, government-run health care.*
The plan outline – it’s not a bill yet – says that, beginning in 2022, private health plans would be allowed to compete with original, 1960s Medicare for seniors’ business on a “level playing field” within a new federal "exchange" or pseudo-marketplace. The Medicare bureaucracy would oversee and referee this competition. And the result, the authors claim, will be savings for taxpayers.
But if not enough savings materialize -- if the reform fails to keep spending to below a certain level -- then there’s a fallback cost-control mechanism: automatic cuts will be imposed upon the fastest-growing areas within Medicare. The specific growth ceiling would be the growth rate of the entire economy plus one percent, or “GDP+1.”
(These provider cuts could be fairly described as "rationing," to the extent they cause doctors and hospitals to go out of business, drop out of the program, or look for ways to move Medicare patients to the back of the line.)
Problem: Government Regulating Its Own Competition
The plan's authors argue that "allowing the private sector to compete with Medicare" will enable Medicare to "offer seniors better-quality and more-affordable health care choices."
This sounds appealing, until we read more carefully. In the outline (which incidentally shows much more of the influence of Wyden than of Ryan), there is never a clear affirmation that original, 1960s Medicare will actually have to compete with private plans on a level playing field. It's hinted at, it's suggested, but it's never quite made explicit. And yet the outline is very clear that original Medicare will be regulating those private plans. So it would seem the one thing we can be sure of is that the Medicare bureaucracy will be regulating its own competitors.
Ryan's staff insists we're getting it all wrong; instead, they say, original Medicare will be "inside the exchange," not outside it. But this is cold comfort, because the Medicare bureaucracy will also be "outside" the exchange, managing the whole system. The Centers for Medicare and Medicare Services (CMS) will be both "inside" and "outside" the exchange.
And incidentally, even if some separate, presumably neutral agency -- the North Pole Commission, for example -- were brought in to manage both Medicare and the private plans, that separate agency would itself be answerable to the White House, meaning there's no way to impose "competition" on a "level" playing field within the executive branch of our government. Fans of premium support are chasing a mirage.
Problem: It Won't Save Money -- Except by Rationing
Because Wyden-Ryan doesn’t appear to subject original Medicare to true competition, I have to conclude that the reform itself probably won't save money, except through government rationing (i.e., that “GDP+1” haircut). Perhaps other parts of the plan -- such as imposing higher premiums on certain seniors -- will save money. But the "premium support" (managed competition) system won't.
Problem: It's ObamaCare for Seniors
My most serious concern with the plan is that I can’t discern any difference in principle between it and ObamaCare. (The progressive pundit Ezra Klein agrees -– and celebrates the fact.) Indeed, I would go so far as to describe Wyden-Ryan as ObamaCare for seniors, except it’s worse in that it includes the sort of government-monopoly “public option” (i.e., original Medicare) that Congress rejected during the ObamaCare fight.
To understand why Wyden-Ryan is basically the same thing as ObamaCare, we need to understand the concept of “managed competition.”
Managed-competition plans can take various forms, but they always have three essential elements:
(There may also be subsidies for the participants, but that’s not essential.)
In managed competition, the “consumers” are not permitted exit the system. They are trapped. And prices aren’t set by true market forces; they’re managed by the bureaucracy, to keep everything “fair,” as defined by whoever set up the system. Hence the name, “managed” competition.
Medicare Advantage = Managed Competition
An example of managed competition is Medicare Advantage, an option within Medicare that lets you receive your Medicare benefits from a private, but government regulated, health plan. (It's optional within Medicare, but Medicare itself isn't optional.) In a sense, Wyden-Ryan is just a larger version of Medicare Advantage, except that original Medicare is to be included as one of the options "inside" the exchange.
ObamaCare = Managed Competition
Other examples of managed competition include HillaryCare and the Heritage Foundation’s “consumer choice” proposal from the early '90s.
Yes, ObamaCare is a managed competition plan. It has the three basic elements I mentioned. It is compulsory, has a government-run exchange, and relies on bureaucratic price controls.
The same was true of its ancestor, HillaryCare. It was compulsory, had a government-run exchange, and relied on bureaucratic price controls.
Similarly, the Heritage Foundation plan -- which many Republicans (most famously, Newt Gingrich) endorsed as a "market-oriented' alternative to HillaryCare -- was compulsory, had a government-run exchange, and relied on bureaucratic price controls.
More recently, the RomneyCare plan adopted in Massachusetts is compulsory, has a government-run exchange, and relies on bureaucratic price controls.
Starting to see the pattern?
Wyden-Ryan = Managed Competition
Well, guess what. Wyden-Ryan -- are you sitting down? -- is compulsory, has a government-run exchange, and relies on bureaucratic price controls.
Wyden-Ryan is "ObamaCare for seniors."
But wait a minute, Clancy. How do you get off calling Wyden-Ryan "compulsory"?
Because Medicare itself is compulsory. You have to join it. That's right, you have to join Medicare. You're not given a choice. Well, technically, you are. But If you don’t enroll, the government withholds your Social Security check. And even if, despite that penalty, you don't enroll, or you drop out, you won't be able to find alternative health coverage outside of Medicare, because the government has basically outlawed private health insurance for people over 65 (except as wraparound or supplemental coverage). With Medicare, everything is -- you'll pardon the expression -- "inside the exchange."
Monopolies hate competition. Put the Medicare monopoly in charge of a “managed” competition, and you know in advance who will eventually win: the bureaucracy. And you also know who will lose: you.
(By the way, the most popular health care plan in America -- the Federal Employees Health Benefit Program (FEHBP), which is the plan Members of Congress use -- is often touted as the model for "managed competition" at its very best. But guess what? While it does employ a kind of "exchange," it's not compulsory and has no bureaucratic price controls. It's "un-managed" competition. Could that help explain why it's so popular?)
Solution: Make Medicare Voluntary
If Republicans embrace this plan, they could be giving Democrats a political “get out of jail” card on ObamaCare, because they will have endorsed for people over 65 essentially the same system they claim they want to repeal for people under 65.
And yet the GOP will still be attacked by the Left for “ending” Medicare, because the Wyden-Ryan plan purports to make original Medicare compete with private insurance companies.
Back in April, Congressman Ryan showed true statesmanship when he brought out a solid Medicare reform plan and persuaded the entire House Republican caucus to vote for it. The Left attacked it viciously, of course. But it was and remains basically defensible. It gave seniors more choice, without including the mirage of "premium support" or the fatal poison of a "public option."
It was, however, flawed in one important respect: It left Medicare compulsory. Republicans could have easily corrected that defect by coming out for something like Sen. Jim DeMint's "Retirement Freedom Act."
Instead, Rep. Ryan has chosen, in effect, to negotiate with himself. By moving left, he apparently hopes to guide his fellow Republicans under a great iron shield that will deflect the Left's arrows. But at what price? (And will it even work?)
As a political matter, the only sure way to make Medicare a non-lethal issue for Republicans is to make Medicare voluntary for individuals.
As a policy matter, making Medicare voluntary is also the only sure way to "allow the private sector to compete with Medicare" and thus "offer seniors better-quality and more-affordable health care choices."
Dean Clancy is FreedomWorks’ Legislative Counsel and Vice President, Health Care Policy
* If it’s a Wyden health care bill -- "Republican, beware." The Wyden-Brown “state waiver” bill, cosponsored by Sen. Ron Wyden (D-OR) and Sen. Scott Brown (R-MA), claims to let states "opt out" of ObamaCare (they wouldn't really be able to, but it's supposed to look like they are). It's a bill well-designed to weaken the ObamaCare repeal effort. which helps explain why President Obama has endorsed it. Likewise, the Wyden-Bennett health care reform bill, which would have been yet another "managed competition" scheme, played a great part in ending the political career of Utah Republican Senator Bob Bennett, whose conservative, liberty-loving Utah constituents weren't impressed.
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Update (4/27/2012): With former Massachusetts governor Mitt Romney looking likely to win the GOP presidential nomination, the Wyden-Ryan plan appears likely to be made part of the Republican Party platform in the 2012 election.
Update (3/29/2012): Wyden-Ryan has passed the House in conceptual form, as part of Congressman Ryan's comprehensive "Path to Prosperity, version 2.0" budget plan for the fiscal years 2013 through 2022. The plan is not expected to be taken up by the Senate, and no further legislative action on Wyden-Ryan is expected in 2012.
Update (1/31/2012): Wyden-Ryan has been endorsed by GOP presidential contenders Romney, Gingrich, and Santorum. Gingrich's support is notable, because he had blasted the 2011 version of the Ryan Medicare reform proposal as "right-wing social engineering." For our take on Mr. Gingrich's outburst, and to learn what we found admirable and what we found troubling in Mr. Ryan's (first) Medicare plan, see this piece from the Wall Street Journal.