The Importance of Ryan-Rivlin

The political ground has been shifting rapidly ever since the American people delivered a vote of no confidence on the current direction of public policy when they went to the polls earlier this month.

Nowhere is that shift more evident than in the recent release of a bipartisan plan to dramatically reform the nation’s health entitlement programs. Sponsored by incoming House Budget Committee Chairman Paul Ryan and former Clinton administration budget director Alice Rivlin, the “Ryan-Rivlin” plan represents a real breakthrough in the long standoff between the parties over how to address the most pressing problem in the federal budget, which is the relentless, long-term rise in costs of Medicare and Medicaid. Ryan and Rivlin both serve on the presidential commission looking at ways to reduce the nation’s short- and long-term budget deficits, and they offered their health-entitlement reform plan to their fellow commission members for consideration.

In Medicare, the Ryan-Rivlin proposal would be transformative. It picks up on a key feature of Rep. Ryan’s “Roadmap” budget plan, which is that new enrollees in Medicare after 2020 would receive their entitlement in the form of a fixed contribution from the federal government rather than today’s defined benefit program structure. These Medicare enrollees would then apply their entitlement against the cost of health insurance. The value of the defined-contribution payment from the government would grow at a rate of GDP per capita plus one percentage point. The plan would also restructure Medicare for current beneficiaries by rationalizing the cost-sharing with a single, higher deductible and more uniform coinsurance across care settings, as well as an out-of-pocket cost limit. Secondary insurance plans would be prohibited from covering the first $500 of the deductible or more than half of the cost-sharing for services.

For Medicaid, Ryan and Rivlin propose moving toward a fixed block grant payment from the federal government to the states. The block grant payments would be indexed to grow with the size of the Medicaid population as well as per capita GDP growth plus one percentage point. The plan does not specify in detail what new flexibility the states would receive to administer the program, but it would presumably be significant new freedom to make changes as needed to run Medicaid according to state priorities.

Beyond Medicare and Medicaid, the plan would also impose limits on noneconomic and punitive damages in medical liability cases as well as repeal the ill-advised long-term care program (called the “CLASS Act”) that was created in the recently passed health care law.

The Congressional Budget Office (CBO) has already issued a preliminary assessment of the budgetary implications of Ryan-Rivlin, and the results are impressive. Over the next decade, Ryan-Rivlin would cut federal deficit spending by $280 billion, and by 2030, federal spending on the major health entitlement programs would be about 1.75 percent of GDP below a reasonable baseline projection.

But the importance of Ryan-Rivlin goes well beyond its details and current CBO cost estimate. The fundamental problem in American health care is that the federal government is providing open-ended financial support for health insurance coverage. Most Americans get their insurance through Medicare, Medicaid, or employer-sponsored insurance. And in each case, the federal government’s support for that coverage increases commensurately with costs. So when costs or premiums rise by an extra dollar, the federal treasury is picking up a sizeable portion of the added expense, thus substantially undermining the incentive for economizing by those enrolled in the coverage or those providing the services.

The solution is an across-the-board move toward more fixed federal financial support for coverage. That’s a central element in the Ryan Roadmap, and has been a theme in just about every market-based reform of health care proposed over the past quarter century. At various times, moving away from open-ended entitlements has gotten the support of some Democrats, most especially when former Senator John Breaux championed “premium support” for Medicare in the late 1990s. But, by and large, most Democrats have resisted these kinds of moves and attempted to control entitlement costs with arbitrary price controls instead.

Ryan-Rivlin is thus an important step because it brings a prominent official from the Clinton administration onto a proposal that would decisively move away from the health entitlement status quo. That’s no small matter.

Ryan-Rivlin is far from ideal. It is largely silent on ObamaCare, which would push the health system in precisely the wrong direction by extending open-ended entitlement promises to millions of new people. Households with incomes below four times the poverty line would see their premiums capped as a percentage of their income, regardless of the expense of their health plan coverage. Moreover, the new law leans heavily on price controls to cut costs, which only distort the marketplace and undermine the quality of American medicine. These damaging aspects of ObamaCare would substantially undermine the benefits that the Ryan-Rivlin approach would produce. The lesson is that there’s no getting around the need to repeal ObamaCare in its entirety. If it remains in place, there will be little that can be done to stop a full government takeover. What’s needed is a full replacement program, with fixes not only for Medicare and Medicaid but also for the tax treatment of health insurance so that workers too become cost-conscious consumers in a reformed marketplace.

Still, Ryan and Rivlin should be applauded for taking this courageous step and putting their health entitlement reform plan on the table for consideration. It is a clear demonstration that the conversation has shifted, and in a much more positive direction. 

posted by James C. Capretta | 5:56 pm
Tags: Paul Ryan, Alice Rivlin, Ryan-Rivlin proposal, Roadmap, debt commission, Medicaid, Medicare
File As: Health Care

The Debt Commission Endorses Obamacare

When the co-chairmen of President Obama’s debt commission released a draft series of recommendations today, they presumably intended to show momentum and create pressure for others to come around to some kind of an agreement.

Press stories are sure to focus on the Social Security changes and how they will antagonize some liberals, thus proving that the proposal is serious.

But the most important entitlement decision in the entire package is the explicit endorsement of Obamacare. The Bowles-Simpson proposal would leave in place the entire trillion-dollar monstrosity. Indeed, many of its supposed cost-cutting recommendations would build on Obamacare’s flawed structure of government-driven cost-cutting through price controls. In particular, they would like to create what amounts to a global budget on health care, with the Independent Payment Advisory Board (IPAB) given the unilateral authority to hit budget targets with price cutting. This is exactly the opposite of what’s needed, which is cost discipline through consumer choice in a functioning marketplace.

Meanwhile, Bowles and Simpson refused to endorse moving Medicare toward a defined contribution program, as Rep. Paul Ryan’s Roadmap proposes, relying instead on the usual laundry list of cuts to the existing program structure.

None of this is all that surprising, given how the commission was formulated. It’s not really a bipartisan commission at all; it’s an Obama commission. It was created by the president and stacked with Democratic appointees. Two-thirds of the 18 members were picked by the president or Democratic congressional leaders. Only six were appointed by Rep. John Boehner and Sen. Mitch McConnell.

The president says the public doesn’t want to “re-litigate” the health care war. He’s wrong. As last Tuesday’s exit polls make clear, a strong plurality wants exactly that. The American people know that the ill-advised law was railroaded through Congress and is a colossal mistake.

The fundamental problem here is that it is not possible build a bipartisan budget framework on a foundation that includes a partisan health-care plan with sweeping implications for future spending levels. To have a bipartisan budget requires a bipartisan health plan. And that means repealing Obamacare and starting over.

posted by James C. Capretta | 6:45 pm
Tags: debt commission, Roadmap, Paul Ryan, Independent Payment Advisory Board
File As: Health Care

Limited Government in the Twenty-First Century

David Brooks’s critique of a Wall Street Journal opinion piece by Arthur Brooks and Congressman Paul Ryan served its intended purpose. It’s gotten the right people talking, and thinking, and that’s as it should be when those currently out of power have a very real shot at participating in governing again.

The back and forth began with Arthur Brooks and Representative Ryan emphasizing the importance of the political moment. After years of elected officials passing laws that have piled new federal programs and commitments on top of the ones created by their predecessors, we now find ourselves with a sprawling federal apparatus that is stifling private economic initiative and bankrupting the country. It is also a powerful, self-perpetuating machine — so powerful that the long march toward ever-more activist government has continued for decades almost without interruption despite numerous efforts (think Reagan Revolution) to apply some limits to the government’s reach.

Ironically, the failure of past efforts and the election in 2008 of a chief executive and a Congress absolutely committed to accelerating the pace of federal power accumulation has sparked a national counter-reaction of such promising force and intensity that there is now renewed hope that the struggle for limited government may yet be won. That was the point of the Brooks-Ryan essay: an exhortation to voters to seize the historic, and perhaps final, opportunity before them to choose political leaders in the fast-approaching mid-term election, as well as in 2012, who are committed to changing course once and for all. This means rejecting, in a decisive way, the activism espoused by those now in power and adoption of a philosophy that puts real limits on government so that entrepreneurial capitalism can again thrive and produce the improvements in the human condition that everyone desires but which central government can never deliver.

David Brooks acknowledges the importance of delivering a decisive electoral rebuke to those currently stepping on the accelerator of the runaway federal freight train. Indeed, he takes it for granted that such a rebuke is coming. His interest is in what happens next. And here he finds the Brooks-Ryan narrative to be lacking in political subtlety. Yes, the federal government has gone beyond the boundaries of its competency — but that does not mean every federal initiative is unworthy. Brooks favors imposition of limits on government — but he fears that unreflective adherence to an anti-tax and anti-government creed will itself result in disappointment and a lost opportunity. Instead of rolling back the welfare state, Brooks fears reactionaries leading the new coalition will end up squandering their chance to make a difference by alienating independent-minded voters who want government to be competent in promoting growth and opportunity, even as it stays out of the way of job-creators in the private sector.

Of course, some of the apparent differences among these leading thinkers might be more in theory than in practice. And certainly both Arthur Brooks and Representative Ryan took exception to the implication of Brooks’s critique that they lean too heavily toward minimalist government. Both note that they support the government’s role in correcting market failure and providing a compassionate safety net.

Nonetheless, it’s useful to see this kind of debate now — even before the election outcome is a certainty. Calls for limited government in the abstract are one thing; imposition of real limits on government — that is, cuts in programs, and the rollback of regulations — is another matter entirely. Even with a robust center-right coalition controlling Congress, it will be exceedingly difficult to get agreement on specifics, as the kind of subtle difference in emphasis on display in the Brooks-Brooks-Ryan debate plays itself out among hundreds of elected leaders coming from all parts of the country. The hard truth is that every cut creates hardship for voters somewhere, and that means hardship for politicians too.

It’s also clear that the backlash against excessive government intervention in American life would not have near the strength it does were it not for the recognition that the country is careening toward a fiscal crisis. Yes, there is a healthy impulse arising to return to constitutional principles of governance. But even that wouldn’t be enough to take on entrenched federal programs were it not for the fiscal mess we are in. The federal government is running up debt like it never has before. The Obama budget plan will produce a $10 trillion budget deficit over the coming decade. That’s what motivating millions of Americans to cast their ballots for new leadership, and that’s what’s creating a new opening to consider cuts to federal programs that would never be considered if the numbers weren’t so scary.

What we are actually witnessing is the end of an economic era. The democratic capitalist countries of the West have all built welfare states of varying sizes and shapes. Europe’s is certainly much larger and more expensive than what has been built in the United States, but all are under severe strain. There is no escaping demographic reality. The aging of populations in the world’s most advanced economies will make it impossible to sustain government programs and protections at the level that exist today.

What’s needed now is an effort to harness the new national energy for reform and retrenchment to solve the nation’s entitlement problem. That will require a frank discussion with the American people about how to apply the enduring principle of limited government to the modern circumstances of a market-driven economy operating within a competitive global environment. That is the most pressing challenge in these early years of the twenty-first century.

Fortunately for us, Congressman Ryan has already given us a "Roadmap" to get the conversation started. And that’s reason enough to have a considerable amount of hope that the healthy backlash now sweeping the country will, in time, bring about the kind of reforms we need — ones that will unlock the potential of America’s private economy and thus finance a secure and stable social safety net, too.

posted by James C. Capretta | 10:19 am
Tags: Roadmap, David Brooks, Arthur Brooks, Paul Ryan
File As: Health Care

A Roadmap to Better Health Care

Thoughts on Paul Ryan’s Plans for Reform

Over at National Review Online, I take a look at Congressman Paul Ryan's "Roadmap" for entitlement and tax reform. The piece focuses on the reforms which are crucial to building a functioning marketplace in the health sector. An excerpt:

Elected Democrats and their allies have also taken note of Ryan’s proposal. Their main interest seems to be, as usual, in scaring seniors about supposed Republican “privatization” plots. In particular, liberals are focusing their anti-“Roadmap” fire on the proposal to convert the Medicare entitlement for those currently under age 55 into a system of fixed contributions toward the purchase of insurance.

Ryan’s opponents are right to highlight this reform. It is a dramatic shift from current law. But they’re wrong to argue that it would do nothing to control health-care costs. These critics claim that Ryan’s plan would simply shift the burden and risk onto individuals, because the government’s financial support for health-insurance enrollment would no longer keep pace with premiums. But that’s the wrong way to look at it. Our goal shouldn’t be to keep pace with premiums, but to bring premiums under control by eliminating the widespread inefficiency that exists in the health-care sector today. That’s the only way to slow the growth of health-care costs without harming the quality of care.

Forget one-off ideas for trimming this or that. What is needed is a continuous, long-term, dynamic process that will lead those who deliver services to want to provide better care at less cost. What can bring that about? Ryan’s emphatic answer is that a functioning marketplace can, and an essential feature of such a marketplace is cost-conscious consumers. Under current law, when costs rise, the federal government pays a sizable portion of the extra costs, thus undermining the incentive to find better and cheaper ways to go about things.

Ryan’s reforms would provide substantial federal support to encourage broad-based insurance coverage and enrollment, but the support would not be open-ended as it is today. A person who buys economical health care would get to keep all of the savings. Conversely, a person who selects expensive health care would have to pay more out of his own pocket. That’s the way the new Medicare drug benefit works, and costs have come in 40 percent below original expectations. To root out inefficiency, improve productivity, and provide powerful incentives for cost-cutting innovation, the entire health-care sector must be transformed into a vibrant, competitive marketplace. And that’s exactly what the “Roadmap” would deliver over time.

The full article is available here.

posted by James C. Capretta | 4:37 pm
Tags: Paul Ryan, Roadmap
File As: Health Care