Reforming Medicare and saving the budget

Patrick Garry Contributor
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Congressman Paul Ryan’s budget plan is the first serious one to be proposed, an achievement for which he deserves a lot of credit. The arrows and recriminations over his proposal — especially his determination to fix Medicare — come with the territory of being first and also of seeking to reform a government program that, while popular, is also a financial train wreck

He and the Republicans also deserve credit for forcing Democrats to admit that our current fiscal situation is dire and needs to be addressed at once. While Democrats and Republicans may not subscribe to the same solutions at the moment, President Obama’s recent (but vague) proposal to cut $4 trillion from the deficit in the next decade is an indication that both parties are on the same page in terms of the problem at hand.

Ryan’s most contentious proposal in his budget plan is to reform Medicare so that people who retire after 2021 will be able to choose the best-suited private insurance plan from a menu of government-supervised and guaranteed private insurance options. The premium costs for these plans would be subsidized by a government contribution approximately equal to what the government now pays for each Medicare beneficiary. This new “premium-support” program would resemble the kind of health care program members of Congress currently enjoy, while providing additional help to the poor and those with greater health risks. Lower-income and sicker beneficiaries would get larger subsidies than healthier, wealthier people.

Under the existing system, the government is not only the largest buyer of health care in America, but also the most inept. It sets arbitrary prices for medical services, and then pays these prices to just about any doctor or hospital delivering those services, regardless of the quality of the services. Health care providers that try to deliver services at lower costs are not rewarded for their efforts. As a result, Medicare spending is increasing more than seven percent a year and will double over the next decade. Unlike the current Medicare system, Ryan’s proposal would put the consumer/patient in charge of health care by determining the demand, and hence prices, of health care services.

The Ryan plan strengthens the safety net for the poor and sick by ensuring the survival of a Medicare system that is not left continually vulnerable by a steadily increasing debt. But his plan has already been condemned as a “war on seniors,” even though it will not change current Medicare provisions for anyone 55 or older.

By reinvigorating the notion of a federal government limited to its stated constitutional functions, the Ryan plan attempts to release us from the stranglehold of outmoded programs from the past — namely, the New Deal and Great Society agendas. Although it attempted to address the worst economic crisis in the nation’s history, the New Deal adopted government entitlement programs that would later mushroom out of control and overwhelm the federal budget. Ryan wants to have government adjust to the realities of modern life — realities that include retirees living much longer than they did during the New Deal period, and health care costs rising exponentially higher than the creators of Lyndon Johnson’s Great Society programs could ever have envisioned.

One of the constitutional principles the New Deal abandoned and Mr. Ryan’s budget seeks to revive is federalism. Under Ryan’s proposal, the federal portion of Medicaid, the health care program for the poor, would be converted to a block grant to states, giving states more flexibility to design programs aimed at the unique needs of their own populations and more incentives to hold down costs, instead of simply obeying universal federal mandates. This mirrors the hugely successful welfare reform approach taken during the mid-1990s. As President Clinton said nearly a decade and a half ago, the era of big government is over.

Patrick M. Garry is a professor at the University of South Dakota School of Law and an economic expert for the American Action Forum.