Wednesday, April 13, 2011

Exploding the lies being told about the Ryan budget plan

The Democrats have been launching many attacks on Paul Ryan plan. As the WSJ explains today, most of those attacks are based on lies. The most passionate attacks are about Medicare.
Medicare "cuts." The Mediscare machinery is grinding into gear, and the same people who say Mr. Ryan is imposing too much pain on seniors by requiring them to pay a larger portion of their health costs also claim that he's a coward for exempting everyone in or near retirement. In other words, the soup is terrible and the portions are too small.

Mr. Ryan's plan, known as premium support, would gradually bring down health costs and spending, but it's a "cut" only in the sense of slowing the rate of growth. The premium support subsidy—for seniors to choose from a list of regulated private health plans—would start at $15,000 a year and increase annually. It is also means-tested to provide more help for lower-income seniors.
What I hadn't realized is how many Democrats, from John Breaux to Tom Daschle, have proposed reforms just along those lines.
The best way to think about Mr. Ryan's plan is that it offers the true health-care reform that Mr. Obama promised but which vanished in the political drive to put 30 million more Americans on the government rolls. Economists from the center-left to center-right have been recommending premium support for decades, and it was first proposed by Stanford's Alain Enthoven in the New England Journal of Medicine in 1978.

Some version has since been endorsed by everyone from President Clinton's 1999 Medicare commission, chaired by Democrat John Breaux, to Bob Dole and Tom Daschle in 2009. Another iteration was floated this week by a group of Nobel laureates including Ned Phelps, Vernon Smith and George Akerlof.

The core economic distortion in the current health market is that consumers rarely have the incentive to seek the best value for their money. By capping the Medicare subsidy, seniors would pay for the marginal costs of their care, promoting competitive insurance. That would in turn incrementally change how doctors and hospitals provide care, encouraging competition in price and quality.
And yes, Ryan's plan does address health care inflation.
Aha, retort the critics, Mr. Ryan would only increase Medicare premium support based on the rate of overall inflation, while health costs are growing far faster. This is true, and we can debate whether the annual increase should be indexed to GDP growth or something else.

But the key point is that premium support would reduce health costs over time by changing the incentives of the health market. MIT economist Amy Finkelstein's research suggests that Medicare's 1965 creation led to market-wide changes that explain about half of the increase in real per capita health spending between 1950 and 1990. Mr. Ryan's plan would be as consequential in reverse.
Now if only this message can spread beyond the editorial pages to the general public.

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