About the Author

James C. Capretta

James C. Capretta

New Atlantis Contributing Editor James C. Capretta is an expert on health care and entitlement policy, with years of experience in both the executive and legislative branches of government. E-mail: jcapretta@aei.org.


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James C. Capretta’s Latest New Atlantis Articles

 Health Care with a Conscience” (Fall 2008) 

 Health Care 2008: A Political Primer” (Spring 2008) 

 The Clipboard of the Future” (Winter 2008)

 

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Text Patterns - by Alan JacobsFuturisms - Critiquing the project to reengineer humanity

Saturday, July 30, 2011

The Path Forward on the Debt Limit 

I have a new piece up on National Review Online making the case for how the debate over the debt limit ought to proceed now, in the wake of the House passage of Speaker Boehner's plan. Here's an excerpt:

It’s been apparent for days now that Senator Reid and his Democratic colleagues aren’t going to simply pass the Boehner plan as-is, especially now that it includes the balanced-budget-amendment requirement. To get this bill through the Senate and to the president’s desk, the GOP is going to have to give the Democratssomething. And that something is almost certainly what the president has said is his bottom-line demand at this late hour: an assurance that there will not be another debt-limit showdown before the November 2012 election. That could be accomplished by dropping the balanced-budget-amendment requirement and substituting for it a modified version of the McConnell proposal from a few weeks ago. Under that formulation, the president could unilaterally increase the debt limit next spring if the “super committee” set up by the Boehner plan does not produce another $1.6 trillion or so in deficit reduction. Republicans would have the opportunity to vote against this second debt-limit increase, but they would need a two-thirds majority to override the inevitable presidential veto.

Many House Republicans will be very upset if this is the compromise that comes out of the Senate and goes back to the House for another vote before Tuesday. But they shouldn’t be. Because, even with such a compromise in the final legislation, the bill would represent a significant strategic victory for the GOP. The president would be denied what he wanted most out of this process — which is GOP acquiescence to a massive tax hike. All of the deficit reduction would come from spending cuts. There would be no “grand bargain” for Obama to tout going into 2012, and no tacit approval of Obamacare from GOP agreement to minimalist entitlement “reforms.” Most especially, the GOP would be seen as acting responsibly to defuse the potential for turmoil and chaos post–August 2.

Some in the GOP may lament that giving the president this out will take the pressure off the “super committee” to actually produce another round of real deficit reduction. That shouldn’t be a concern. Indeed, it should be a relief to the GOP if the “super committee” is rendered toothless — because nothing good will ever come of it. With this president in the Oval Office, there’s no chance that genuine entitlement reform will get enacted, as the Bowles-Simpson commission demonstrated (Obamacare was left entirely in place in the commission’s plan). It is more likely that a disaster would ensue when one wavering Republican on the “super committee” agreed to a “grand bargain” along the lines of what the president was pushing in June and July. That would force both the House and the Senate to vote, up or down, on the “super committee” recommendations, meaning there would be a very real chance that a massive tax hike would pass with very little on the entitlement side in return.

You can read the whole piece here.

posted by James C. Capretta | 5:26 pm
Tags: debt limit, debt

Monday, July 25, 2011

Getting to “Yes” 

With the collapse of the Boehner-Obama talks, it looks as if something closer to “regular order” in the legislative branch will probably be needed to produce the final deal to raise the debt limit. The House is moving toward taking up a plan drafted by the speaker and his lieutenants, and Senate Majority Leader Harry Reid is drafting a competing version for his chamber.

This is a good development. Because it’s been clear for some time now that President Obama has been the real roadblock.

The president and his advisors wanted to take what looked on its surface as a potential problem for them—the need to raise the debt limit—and turn it into an opportunity. They have had three primary objectives in this fight. First, the president has wanted to force congressional Republicans to agree to a large tax hike. Such a hike would partially mask the government’s spending problem for a time (though not permanently), and thus ease the pressure for spending cuts. It would also badly divide the conservative coalition going into an election year. In other words, it would be a real “twofer” for the president and his party and would certainly be trumpeted as such by the mainstream press.

Second, the president has wanted to further advance the Obamacare vision for health care. That has meant no meaningful move toward repeal and replace, and in fact further changes in Medicare and Medicaid that are in the spirit of Obamacare’s central-planning philosophy.

The president’s third objective was to reposition himself politically. His first two years in office were dominated by the so-called “stimulus” proposal and Obamacare — efforts that cemented the electorate’s perception of him as a big spending, big government liberal. Heading into 2012, the president and his advisors desperately want to change his image, especially among independent voters, and they were hoping that a “$4 trillion” deficit-cutting plan would do the trick.

Unfortunately for the president, as the details of his talks with Speaker Boehner have spilled out into the press, it hasn’t helped him shed his well-earned reputation as a big spender. The dominant story line that has emerged is that the president has insisted on a $1.2 trillion tax hike to get a deal, and Republicans have said “no,” especially given the president’s insistence that a serious re-write of the health care entitlements, including Obamacare, is “off the table.” By holding firm, Republicans have — so far — denied the president the ability to shift political blame onto them for the tax hikes he wants to impose on working Americans. Consequently, as matters stand today, the debt-limit talks have only further exposed the president as a big government liberal.

So Republicans have acquitted themselves remarkably well to date. The question is, what should they do now?

First, House Republicans must realize that, at this stage, they have to pass a credible plan through their chamber. Having rejected the Obama “grand bargain,” they need to show the country they are willing to pass a debt-limit increase on reasonable terms to avoid the real, if sometimes exaggerated, risks associated with a debt-limit crisis. The two-step process that Speaker Boehner outlined to his colleagues today looks like it should do the trick in that regard. It would impose discretionary spending caps for a decade, thus producing real restraint on domestic appropriations. The savings — about $1.2 trillion over ten years — would be accompanied by a substantial and immediate increase in the debt limit.

In addition, the Boehner plan would empower a special bipartisan joint committee of House and Senate members to draft further budget-cutting reforms, including entitlement changes. The target would be an additional $1.8 trillion in deficit reduction over ten years. The recommendations of this committee would go to an up or down vote in both the House and the Senate, probably sometime in early 2012.

Senator Reid and his Democratic colleagues are objecting to the Boehner plan on the grounds that it would force another debt-limit showdown in 2012, almost certainly with the same disputes about taxes and entitlements. Fair enough. House and Senate Republicans should be open to a reasonable counter-offer from Senator Reid, especially if it is an offer that could actually pass in the Senate.

The details of course matter immensely here. The legislation to raise the debt limit needs to include real spending restraint, not gimmicks or smoke and mirrors. But if the cuts in a Reid counter-offer are real, and if they are of a size to comfortably allow an even larger bump up in the debt limit, Republicans should be open to moving in that direction if doing so would produce a final deal with Senate Democrats.

Because, from a strategic point of view, even a resolution of the kind Reid is pursuing — one giving the president a debt-limit hike into 2013 — would give Republicans all they need from this fight, if the spending cuts are indeed real and not focused on defense. There would be no “grand bargain” for the president, and no “Gang of Six” plan. There would be sizeable, even historic, spending cuts, with no accompanying tax increase. There would be no tacit approval of Obamacare. And there would be no political fallout from the unpredictable economic turmoil that could accompany a hiatus in federal borrowing.

It’s true that such a deal would also mean giving up on entitlement reform before 2013. But, given what’s happened over the past two months, it’s obvious that genuine entitlement reform isn’t going to happen with this president in the Oval Office.

Republicans have successfully dodged several bullets to this point. It’s now time for them to see that they are in a good position to close a deal on their terms — and then move on.

[Cross-posted to the Corner.]

posted by James C. Capretta | 5:48 pm
Tags: John Boehner, Harry Reid, Barack Obama, debt limit
File As: Health Care

Wednesday, July 20, 2011

The Gang of Six Disaster: The Worst Plan So Far 

Confusion among congressional Republicans about their objectives in the debt-limit endgame has increased the possibility that they will stumble into a policy and political disaster over the next two weeks.

Only ten days ago, Republicans appeared to regain their footing when House Speaker John Boehner torpedoed the disastrous “grand bargain” that President Obama was offering. That deal would have forced Republicans to accept a massive $1 trillion tax hike and left Obamacare in place. In return, the president offered more centrally planned cuts in Medicare and Medicaid and other minor entitlement adjustments. Some deal.

But now, along comes the Gang of Six plan, and some Republicans are apparently intrigued by it. They shouldn’t be. It’s a terrible, terrible plan. It will hand the president a huge strategic victory and deliver nothing that the GOP should be seeking in this fight. It’s far, far worse than anything we have seen thus far, and certainly much worse than the McConnell plan.

In a nutshell, the Gang of Six plan would have three parts. Let’s look at each part in turn.

First, there’s a relatively small bill to supposedly save $500 billion immediately with a combination of discretionary spending caps through 2015, a move toward the chained CPI for indexing Social Security and the tax brackets, repeal of the CLASS Act, and other unspecified process provisions. Although unstated, presumably it is this bill that would carry a temporary debt-limit increase to get past August 2, and probably provide about six months of room before another debt-limit increase became necessary.

Republicans must understand that even in this small, initial part of the package, the Democrats are insisting on a tax hike. The chained-CPI proposal will increase taxes along with slowing inflation increases in Social Security.

The second part of the Gang of Six package is far worse. It’s essentially a call for a budget “reconciliation” bill, with no specifics yet available. Senate committees with jurisdiction over taxes and entitlements would be tasked with achieving targeted amounts of savings or tax increases. For instance, the Finance Committee would be charged with reporting out a tax-reform plan that increases taxes by about $2.3 trillion over a decade. That committee would also be charged with finding savings in Medicare and Medicaid, but there’s absolutely no indication of how the savings will be achieved.

Republicans would be foolish to think this process will produce anything worthwhile. The Democrats control the Senate, and all of the committees. They will write the tax and entitlement changes, and look for Republican votes. It’s a recipe for another round of useless mishmash posing as “entitlement reform.” Remember, Finance Committee chairman Max Baucus is an architect of Obamacare. If his committee were to produce any real health-care savings at all, it would be with the same kind of price-setting and central planning that was written into Obamacare. There’s zero chance this process will lead to any meaningful movement away from the Obamacare model.

If this “reconciliation”-style package of tax and entitlement changes gets supermajority support in the Senate, then the Senate would move on to the third part of the Gang of Six proposal: a Social Security reform package that closes the long-term financing gap. Again, with Democrats in control of the Senate and the writing of legislation, this almost certainly would mean another large tax increase. The Social Security plan would then be attached to the legislation containing the other tax and entitlement changes, and sent to the House (probably on a take-it-or-leave-it basis).

In short, the Gang of Six has essentially offered a plan in which Republicans would hand over control of the budget process to Democratic senators and hope for the best. Enough said.

Republicans need to quickly get their bearings and figure out how they want to play the endgame. At this stage, any version of a “grand bargain” will play completely into the president’s hands. It will lead to a massive tax increase, with nothing meaningful on entitlement reform to show for it. The president would get a strategic victory, having forced Republicans to vote for a tax increase without giving up anything real on the spending side. And the conservative coalition would be at war with itself. So drop the idea of a grand bargain.

Next, Republicans must realize that being tactically nimble in this fight will be the difference between success and failure. The conservatives in the House who say they will never, ever vote to increase the debt limit need to realize they are handing all of the leverage to President Obama. To begin with, the budget they support — the Ryan budget that the House Republicans voted for nearly unanimously in April —requires a large debt-limit increase. Indeed, there’s no conceivable budget plan out there that doesn’t require one. Moreover, there is a strong chance that going past August 2 without an increase could completely backfire on the GOP. It’s hard to predict what will happen, but it could be quite chaotic and cause real damage to real investors and businesses. It will almost certainly trigger a very negative public reaction, which will then force Congress to raise the debt limit quickly, one way or another. It’s hard to see how such a confrontation will help Republicans get a better deal.

What conservatives should be doing is seizing the initiative in the House. They should move immediately to pass a small debt-limit increase, on the order of $500 billion, coupled with a reasonable set of spending cuts, including caps on discretionary spending. They should then send that to the Senate as the starting point for discussions. Doing this now would increase Speaker Boehner’s leverage immensely, as he would become the only person in the room who had shown by his actions that he doesn’t want a default. Moreover, at this late stage, there’s a very real chance it would become the vehicle for getting past August 2.

If Republicans can’t find their way to make such a move (for whatever reason), then they have little choice but to work with Senator McConnell on his version of Plan B. But they should make it absolutely clear that no version of the Gang of Six plan will be acceptable.

[Cross-posted at the Corner]

posted by James C. Capretta | 4:09 pm
Tags: Gang of Six, budget
File As: Health Care

Friday, July 15, 2011

A Hearing on the “Medicare Trigger” 

On Tuesday, July 12, a Subcommittee of the House Oversight and Government Reform Committee convened a hearing on the so-called “Medicare Trigger.” I was asked to testify on a panel that included Chuck Blahous, Public Trustee for Social Security and Medicare, Joe Antos of the American Enterprise Institute, and Paul Van de Water of the Center on Budget and Policy Priorities. We followed Jonathan Blum of the Centers for Medicare and Medicaid Services, who testified on behalf of the administration.

The Medicare trigger was enacted in 2003 as part of the Medicare prescription drug legislation. It requires the Medicare trustees to monitor the financing of the program and issue warnings whenever dedicated revenue sources for the program (mainly payroll taxes and premiums) fall below 55 percent of total Medicare spending — or, to put it another way, whenever non-dedicated revenue sources cover more than 45 percent of the program’s total annual costs. This trigger was intended to help Congress keep track of the burden that Medicare spending is placing on general taxpayer funds. If the trustees issue a warning two years in a row, then the president is supposed to submit legislation to correct the breach. In 2011, the trustees issued a warning but no legislation was submitted by the president, which is the main reason the hearing was held.

My testimony is available here, and all of the written testimony, along with video of the hearing, are available here.

posted by James C. Capretta | 3:59 pm
Tags: Medicare Trigger, House testimony
File As: Health Care

Thursday, July 7, 2011

Budget Danger Ahead 

I have a new article up at National Review Online on why danger lurks for Republicans, and the nation, in the debt-ceiling showdown:

Democrats want a deal that doesn’t give an inch on what really matters to their voting base — which is the entitlement status quo....

To further that goal, the president and his allies are playing a familiar card. It’s not that they are against entitlement “reform,” they say, it’s just that they want to protect the beneficiaries from any financial sacrifice. And so we learn in recent days (see here and here) that Democrats are willing to put sizeable Medicare and Medicaid “cuts” on the table....

These kinds of changes in Medicare and Medicaid are nothing new. Various versions of them have been included in every budget deal going back 30 years, and most especially in the bipartisan deals of 1990 and 1997. They do not constitute genuine entitlement reform. They will not fix Medicare and Medicaid. And they will not solve the nation’s budget problem....

Read the whole article here.

posted by James C. Capretta | 5:09 pm
Tags: budget, debt ceiling, Medicare, Medicaid, Republicans, Democrats
File As: Health Care

Tuesday, June 21, 2011

Klein’s F on Part D 

At the time of its enactment in 2003, the Medicare drug benefit — known as Medicare Part D — had many critics. Some said the program, which is built on consumer choice and vigorous competition among private plans, wouldn’t work, because the private plans would decline to participate without a guaranteed share of the market. Others said the beneficiaries wouldn’t sign up for the voluntary benefit, because the competitive structure would be too complex to navigate. Still others said the program would explode in costs without government-imposed price controls.

All these predictions were dead wrong. The program is now in its sixth year of operation, and it has exceeded all expectations. Some 90 percent of Medicare participants are now in secure drug coverage of some sort, and public-opinion surveys continue to show that seniors are very satisfied with the new program. Most important, the drug benefit’s costs for the first decade are coming in 42 percent below what was predicted at the time of enactment.

As this evidence of success has piled up, the critics largely and wisely went silent, realizing they had little ground to stand on.

But that began to change when Rep. Paul Ryan proposed a broader reform of Medicare that is modeled on the Part D success story. Now the critics have little choice but to try to discredit Part D lest they lose the battle over the future of Medicare. And so the attacks have resumed.

The only problem is that the critics’ arguments still have no basis in fact.

Take the latest attack from Washington Post blogger Ezra Klein. He recently argued: (a) that spending on prescription drugs throughout the health-care system (that is, not just in Medicare) is also far below previous expectations, which proves that Part D’s market-based design had nothing to do with costs’ coming in under budget; (b) that, regardless of what has happened to date, future Part D spending is expected to rise rapidly, thus undermining claims of cost discipline; and (c) that Part D premiums are 57 percent higher in 2011 than in 2006.

Unfortunately for Klein, each of these criticisms is easily dismissed.

Let’s start with the drop in projected drug spending systemwide. In early 2004, the actuaries at the Centers for Medicare & Medicaid Services (CMS) issued national health-expenditure projections indicating that total retail prescription-drug spending for the ensuing decade would reach about $3.5 trillion. In early 2010, the actuaries released new projections estimating drug spending for the same ten-year period at about $2.4 trillion, or 31 percent below the previous projection. But these projections include prescription-drug spending for both the elderly and the non-elderly. What would the numbers look like if the drop in drug spending for the elderly (about one-third of all spending) were removed from the estimates? When that is done, the drop in projected spending for everyone else is shown to be less pronounced — just about 27 percent. So, despite the impression that Klein tries to leave, the fall in projected spending for the elderly exceeds the fall in spending for the rest of the population.

Moreover, there’s a real question about what precipitated the fall in projected spending systemwide in the first place. Obamacare apologists are constantly arguing that changes in Medicare have the potential to influence the entire health-care market. Well, if that’s the case, it would apply to Part D as well. For instance, Part D plans have aggressively pushed generic substitution as a way to lower premiums — and they have had considerable success. Isn’t it likely that this trend among the elderly has influenced how physicians and pharmacists behave with all their patients?

In sum, the drop in drug spending systemwide is not evidence of Part D’s irrelevance. Indeed, it reinforces the point that Part D has been effective.

Next, Klein cites estimates from the CMS actuaries to argue that, even if Part D cost escalation has been moderate in the past, it is set to rise sharply in the future. But he fails to mention that a main reason for projected cost growth going forward is that Obamacare expanded the drug benefit by closing the so-called “doughnut hole.” Moreover, the actuaries have noted that these projections come with great uncertainty. What we do know with certainty is that costs in the program’s first five years have come in remarkably low.

Finally, Klein argues that Medicare beneficiaries are paying premiums in 2011 that are 57 percent higher than they were in 2006. This is demonstrably false. The data Klein cites are based on a subset of the program — the stand-alone drug plans — which means Medicare Advantage enrollees and those with employer-sponsored drug coverage are excluded from the calculation. Moreover, it assumes that seniors in 2011 will remain in the same plans they were in in 2010. But the whole point of Part D’s consumer-choice structure is that it allows enrollees to migrate out of plans with high costs to those with lower costs. And, not surprisingly, that has happened every year of the program’s operation. The actual premiums paid by enrollees in 2011 are expected to be well below those cited by Klein.

The truth that Klein and others seem unwilling to face is that, on an “all in” basis, Part D has been a phenomenal success story, as shown in the graph below. From 2006 to 2010, per capita Part D costs across all settings have risen by an average of just 1.2 percent annually, which is well below the per capita rise in costs for the rest of Medicare.

Medicare Part D Drug Benefit

The key to the drug benefit’s early success is engaged consumers. Seniors want to get the best value for their Part D premium, and that means looking for low-premium plans with good coverage for the drugs they need. The result has been a record of cost control that has never been matched by government micromanagement — and never will be.

posted by James C. Capretta | 11:47 am
Tags: Ezra Klein, Medicare Part D
File As: Health Care

Monday, June 13, 2011

On Political Expediency and Health Care Reform 

In a new column for Kaiser Health News, I point out a strange turn that our debates over health care have taken:

Once upon a time, President Barack Obama and many others who championed his health care plan actually professed faith in the power of a functioning health care marketplace. That now seems like a distant memory, given the demonization campaign that the president and his allies have launched against House Budget Committee Chairman Paul Ryan's plan to inject consumer choice and competition into Medicare. But there's no doubt that while the health law was under consideration in Congress, the president and his team wanted to leave the impression with voters that the plan they were pushing would rely mainly on market signals, not heavy-handed government control....

Meanwhile, now that their plan is law, the tune has changed. The enthusiasm for premium credits, consumer choice of private health plans and decoupling of credits from health costs seems to have waned. Indeed, it's waned to such an extent that these are now not just bad ideas but ideas that would destroy America as we know it! ... Those who previously stressed that the new health law would have a strong component of consumer choice and competition are now saying that a functioning marketplace will never work.
 
You can read the whole thing here.

posted by James C. Capretta | 10:59 am
Tags: Obamacare, Ryan plan, Peter Orszag
File As: Health Care

Thursday, June 2, 2011

How Should Washington Control Medicare Spending? 

On May 19, I participated in a public forum in Washington, D.C., sponsored by the Heritage Foundation, called “How Should Washington Control Medicare Spending?” My remarks focused on why a market-based reform of Medicare would be far superior to government-imposed cost controls. The event was moderated by Bob Moffit of the Heritage Foundation, and I was joined on the panel by Gail Wilensky, a former administrator of the Health Care Financing Administration and now a Senior Fellow at Project Hope. Full details on the event are available here, and my slides are available here.

posted by James C. Capretta | 11:48 am
Tags: Medicare
File As: Health Care

Tuesday, May 31, 2011

The Demographics of Social Security 

I have a new article up in The Family in America on one crucial element of the looming fiscal crisis — Social Security: 

The Social Security program has been the subject of a nearly continual political and policy debate for the better part of fifteen years—although no significant changes to the program have been enacted since 1983. It is now almost forgotten that President Bill Clinton took initial steps toward a Social Security overhaul in the late 1990s, engaging in a series of nationwide "open forums" on the future of the program before abandoning the effort in favor of the more rhetorical—and politically safe—"Save Social Security First!" slogan. While notionally aimed at "saving" the Social Security surpluses, in the end, the Clinton Social Security effort meant little more than "Don't Cut Taxes!"

In 2005, President George W. Bush, having campaigned on Social Security reform in the 2000 and 2004 presidential elections, attempted to put the issue on the national agenda. His proposal to introduce voluntary personal accounts set off a heated debate among reformers and program advocates, with scores of experts queuing up to advocate a politically diverse range of recommendations, with a number of these recommendations taking form as competing bills before Congress. Despite the intense level of activity, the president was never able to get traction for his ideas, as there was little momentum or consensus for reform.

With so much discussion and political debate in recent years, one might think that every possible diagnosis of and remedy for Social Security's long-term financial challenges has been offered and debated. Yet there has been very little mention of the central issue in financing Social Security—namely, the long-term fertility rate. Indeed, if the U.S. fertility rate were expected to return to the levels seen in the 1950s and through the mid-1960s, the subject of Social Security reform would likely never come up at all. With higher birthrates, there would be no financing crisis, as the projected workforce in the decades ahead could support the growing numbers of elderly Americans. With no financing shortfall, politicians would gladly leave the program alone.

Unfortunately, fertility is not projected to rise to the levels seen in earlier eras, and, consequently, Social Security does indeed face a substantial long-term financial shortfall. As Social Security again takes center stage in the national debate, policymakers need to take time to understand the critical relationship between fertility and Social Security financing, as well as the potential implications of different reform options for indirectly improving or worsening the American fertility problem over time.

Read the full article here.

posted by James C. Capretta | 8:22 pm
Tags: Social Security, fertility rate
File As: Health Care

Thursday, May 19, 2011

The $6,400 Question 

The ongoing delusion of the price-control solution

When President Obama decided to take the political low road and demonize House Budget Committee Chairman Paul Ryan’s Medicare reform plan in his budget speech last month, it wasn’t really surprising. President Obama demonstrated in the 2008 campaign that he is a world-class practitioner of shamelessly dishonest political attacks when he went after Senator John McCain for proposing a change in the tax treatment of health insurance, and then pushed for a change himself once he was elected. Given this track record, there was every reason to believe he would jump on the chance to demagogue on health care again if the opportunity presented itself. And boy has he. It’s now clear based on four weeks of a relentless barrage that his reelection effort will be based heavily on creating fear in the electorate, and specifically among seniors, about the supposed negative consequences of the Ryan Medicare plan. So much for an administration devoted to hope and change.

But what exactly is the substantive basis for the president’s attack on Ryan’s proposal? Here’s the key paragraph from the speech:

[The Ryan plan is] a vision that says America can’t afford to keep the promise we’ve made to care for our seniors. It says that 10 years from now, if you’re a 65-year-old who’s eligible for Medicare, you should have to pay nearly $6,400 more than you would today.

Where did the $6,400 figure come from?

Best as anyone can tell (the president didn’t cite a source), it seems to have been derived from the Congressional Budget Office’s April 5 analysis of the Ryan budget. On page 22 of that report, CBO (always so helpful!) provided its assessment of what it would cost an average 65-year-old to enroll in a private health plan compared to what it would cost that same average 65-year-old to stay in traditional Medicare. It’s an illuminating piece of work on the part of CBO, but perhaps not for the reasons CBO intended.

The mechanics appear to be as follows: CBO says the Ryan plan would provide an $8,000 “premium support credit” for average-health 65-year-olds in 2022, which would only cover 39 percent of the total cost of providing a standard Medicare package of services to such beneficiaries. That puts the total cost of the private plan at $20,500, of which the beneficiaries would be required to cover $12,500 out of their own pockets.

By contrast, CBO says the traditional Medicare program could provide the same standard package of services for just $14,800 in 2022 (in what’s called the “alternative fiscal scenario”). Under current law, the government would cover about $8,600 of the total cost, leaving a little under $6,200 for the beneficiaries to cover themselves. With rounding, the difference between what it would cost the average 65-year-old under the Ryan plan compared to what it would cost under current law is “nearly $6,400” in 2022, or so it would seem from CBO’s numbers.

Ironically, this analysis from CBO actually tells us much more about CBO than it does about what the Ryan plan will mean for seniors in 2022.

There are two key assumptions underlying the numbers that are highly implausible and reveal a systematic tilt toward government-run health care.

First, CBO says that in 2022 government-run Medicare could provide the standard package of health coverage for just 72 percent of what it would cost a private plan to do so. How could that possibly be? Simple: Price controls, and especially the deep cuts in Medicare’s fixed prices imposed under Obamacare. If one assumes that there are no consequences whatsoever to paying ever-lower rates of reimbursement for medical services, then, sure, government-run Medicare, and for that matter government-run health care more generally, would look cheaper on paper than private health insurance.

And, in fact, this is not a new development. Health care price controls have always looked good on CBO tables, which is a huge problem in the policymaking process. But they never look quite so good in the real world. Consider Medicaid. State governments have imposed extremely low rates for most medical services, and the program’s participants often have a difficult time securing access to needed care. Far too often, it’s insurance on paper and not in practice. Moreover, because the rates are so low, the quality of care provided to the Medicaid population is well below what most Americans would find acceptable.

CBO’s analysis makes none of these quality distinctions. Price-controlled Medicare, with payment rates as low as Medicaid’s today relative to private insurance, is assumed to provide the same quality care as private coverage. It’s absurd.

Incidentally, it should be noted that in Medicare Advantage, private-sector HMOs were able in 2010 to provide the standard package of Medicare services for less than what government-run Medicare costs (according to MedPAC data). And that’s in spite of the price controls imposed by government-run Medicare. The reason is that government-run Medicare is a massively inefficient operation. Yes, it pays very little per service, but the volume of services provided has been soaring on an annual basis for years and years.

The other crucial assumption is that competition in Medicare has no effect whatsoever on the efficiency or cost of the options offered to Medicare participants. The whole point of the Ryan plan is to build a functioning marketplace, in which plans have to compete for the business of cost-conscious consumers. Ryan rightly believes that this is the key to genuine “delivery-system reform,” by which those delivering the services to patients find new, better, and more efficient ways of providing needed services at less cost. But CBO’s assessment assumes nothing will change at all.

Those who have been pushing for a market-based solution for health care have long complained that CBO’s analyses inevitably favor a command-and-control approach. This latest analysis only confirms that point of view. Unfortunately, it’s a sad reality that genuine reform of the nation’s health entitlements and broader health system are likely to be enacted in spite of analyses from CBO, not because of them.

posted by James C. Capretta | 10:13 am
Tags: Ryan Plan, CBO, Medicare
File As: Health Care

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