NCPA - National Center for Policy Analysis

Medicare Drama More Hype than Reality

August 16, 2012

Much of the focus since Mitt Romney selected Paul Ryan as his running mate has been on the "Ryan budget" and the supposedly drastic difference between the Republican's Medicare plan and President Obama's, say John C. Goodman, president at the National Center for Policy Analysis (NCPA), a research fellow at the Independent Institute and author of Priceless: Curing the Healthcare Crisis, and Thomas R. Saving, an NCPA senior fellow, former Social Security and Medicare trustee and director of the Private Enterprise Research Center at Texas A&M University.

Surprisingly, there's very little difference between the two plans.

  • There is no important difference in Medicare spending -- even when the estimates of the president's budget are made by his own Office of Management and Budget and the costs of the Ryan plan are projected by Ryan himself.
  • Based on what is known, the difference is in how the spending targets are achieved.
  • And even there similarities abound.

Much has been made of the fact that Ryan would create "vouchers," allowing seniors to buy private insurance. To hear the critics tell it, this would radically transform Medicare by "privatizing" it.

  • But we already have a voucher program under Medicare: Medicare Part C, or the Medicare Advantage program.
  • And one out of four Medicare beneficiaries is enrolled in a Medicare Advantage plan.

President Obama has long favored reducing the payments to these plans, and significant cuts are part of the Affordable Care Act. However, neither the president nor any other prominent Democrat is calling for the abolition of these very popular plans.

Although Ryan favors an expansion of private Medicare plans, his budget implicitly endorses the same payment cuts that are incorporated in the health law. In Ryan's latest budget, everyone will have the option of remaining in the traditional Medicare program. So regardless of how much the private plans are paid, total spending can't be controlled unless traditional Medicare costs are brought under control.

How would Ryan do that?

  • One new idea Ryan has proposed is to eventually increase the age of eligibility from 65 years old to 67 years old.
  • Because the president has signaled a willingness to do the same thing in budget negotiations with Republicans, it's hard to make too much of this.
  • Beyond that, the Ryan plan would limit the growth in Medicare spending to per capita gross domestic product growth plus 0.5 percentage points -- which again is in line with the president's budget.

The White House and Ryan Medicare budgets don't differ that much. What does differ is their approach. The president's approach -- limit the growth of payments to providers -- is inflexible. Ryan's approach has the advantage of making the cuts less painful by allowing market-based reforms.

Source: John C. Goodman and Thomas R. Saving, "Medicare Drama More Hype than Reality," USA Today, August 16, 2012.


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