The Ryan Plan Redux

Article excerpt

In the August 2011 issue of this journal, I discussed Representative Paul Ryan's (R-WI) budget proposal, which the House of Representatives enacted in April 2011. It died in the Senate, but at the time I argued that Ryan's bill posed a "serious challenge to the nation's social welfare institutions" (Gorin, 2011, p. 166).

In March 2012, the House of Representatives, largely on a party-line vote, enacted a revised version of Ryan's controversial proposal (see http://thomas.loc.gov/cgi-bin/bdquery/z?d112: HC00112:@@@D&summ2=m&). This bill too died in the Senate. However, Ryan's proposals articulate the Republican vision of where the nation should be heading. A spokesman for Mitt Romney, the presumptive Republican nominee for president, has indicated Romney's support for Ryan's bill, and if the White House and Senate change hands in November, it will likely become law (Simpson, 2012).

The implications and potential consequences of Ryan's proposal are sobering. It would end Medicare as we have known it, shift costs to beneficiaries, undermine traditional Medicare, and increase the program's retirement age. It would also undermine Medicaid and Social Security.

Since its inception, Medicare has guaranteed coverage to older adults; more recently, it has guaranteed coverage to some individuals with disabilities as well. The 2011 version of Ryan's proposal would have eliminated traditional Medicare and given beneficiaries a voucher, or premium support, to buy private health insurance (Gorin, 2011). The 2012 version of the legislation changed this slightly. Beneficiaries would still receive a voucher, but they would now have a choice of buying traditional Medicare or private insurance (Oberlander, 2012). The voucher would be equivalent to the cost of the second-least expensive option in an area (Van de Water, 2012).

Unfortunately, the value of the voucher would be unlikely to increase with the rate of health-care inflation. Beginning in 2023, Medicare spending for new beneficiaries (that is, individuals born in 1958 or after) would grow with the gross domestic product (GDP) plus an additional half percentage point per year (U.S. Congressional Budget Office, 2012). This is "below the rate of growth in health care costs in recent decades" (Greenstein, 2012). To meet the "GDP plus one-half percentage point target," Medicare would be required reduce the purchasing power of the vouchers (Van de Water, 2012). As a result, Ryan's plan would gradually shift the cost of coverage from the government to beneficiaries. By 2050, the federal contribution for a new enrollee would average between 35 percent and 42 percent less than it would under the current system (U.S. Congressional Budget Office, 2012).

It is true that under the latest version of Ryan's proposal, beneficiaries could choose to join traditional Medicare. However, this is somewhat problematic. Because Ryan's proposal would allow private insurers to gear their plans to younger and healthier beneficiaries, individuals in poorer health, "who cost more to serve," would likely become concentrated in the traditional plan (Greenstein, 2012). Although traditional Medicare would be compensated for its less healthy population, the process of "risk adjustment ... is highly imperfect," and it is unlikely that traditional Medicare would be fully compensated for "higher-cost enrollees" (Greenstein, 2012). This would require Medicare to increase its premiums, which would likely accelerate the movement of healthier individuals to private plans and destabilize the traditional plan.

This unraveling of traditional Medicare could adversely affect not only new enrollees, but also people born before 1958, who Ryan has assured would not be affected by his proposal. These individuals could "well face higher premiums and cost sharing for traditional Medicare, a more limited choice of providers, or both" (Van de Water, 2012).

Ryan's proposal would also increase the age of eligibility for Medicare. …