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The False Choice Between Existing Medicare and Ryan’s Proposal

Posted By Kathryn Nix On April 21, 2011 @ 2:30 pm In Economics | Comments Disabled

Yesterday, Washington Post columnist Ezra Klein used a recent poll to argue that Americans oppose House Budget Committee Chairman Paul Ryan’s (R–WI) proposal to transform Medicare into a defined-contribution system [1], where seniors choose the health plan that best suits their needs. But, as always, the devil is in the details.

The Washington Post–ABC News poll [2] gave respondents the following options: “Medicare should remain as it is today, with a defined set of benefits for people over 65, OR Medicare should be changed so that people over 65 would receive a check or voucher from the government each year for a fixed amount they can use to shop for their own private health insurance policy.”

In response, 65 percent said Medicare should be left untouched, with 34 percent preferring a defined-contribution approach. When asked generally if they would support cutting spending on the Medicare program in order to reduce the national debt, 78 percent said they opposed it.

The problem is, this represents a false choice between a feasible scenario and an impossible one. Experts on both sides of the aisle acknowledge that it is not possible to sustain Medicare in its current form.

Due to an aging population and growth in health care costs, spending on the program is skyrocketing, representing a minimum of $30.8 trillion in long-term unfunded obligations [3]. According to the Congressional Budget Office, in 2010, Medicare spending consumed 3.6 percent of gross domestic product (GDP). This will more than double to 7.6 percent of GDP by 2050 if current law is unchanged. If Congress continues to delay reductions to Medicare physician payments and the Obamacare cuts do not fully occur, as the Congressional Budget Office and Medicare Actuary warn, the outlook is even worse—the program would consume the same level of spending a decade sooner, and continue to climb from there [4]. Even major tax increases would not be adequate [5] to sustain this kind of spending.

Studies show that [6] across the board, Americans contribute far less to the Medicare program than they receive in benefits. This is because workers do not pay for their own future benefits—today’s payroll taxes cover benefits for the current retired population. As the number of workers relative to Medicare enrollees declines, it will be impossible for taxpayers to maintain current benefits for future seniors.

Therefore, change to Medicare is not a choice—it is inevitable. It can take one of two paths: it can rely on top-down control of cost and utilization of services by empowering bureaucracy, or it can control costs by giving patients the purchasing power to seek the best value for their health care dollars. The ongoing debate over health care reform shows that Americans do not favor a stronger role for government in their health care. A Kaiser Family Foundation poll [7] asked whether Obamacare would lead to too much government involvement in the health care system—54 percent of Americans said yes, compared to 32 percent who thought it was about right. A CNN/Opinion Research Corporation Poll [7] asked if Congress should leave the health care overhaul as is, repeal and replace it, or increase the government’s involvement. Twice as many respondents choose to repeal and replace Obamacare rather than increase government involvement.

If big government is the mode employed to control Medicare spending, Obamacare will pale in comparison. Given the alternative of a centralized, bureaucracy-focused approach, reforms like those proposed by Representative Ryan represent the best way to sustain the program for future generations.


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2011/04/21/the-false-choice-between-existing-medicare-and-ryan%e2%80%99s-proposal/

URLs in this post:

[1] defined-contribution system: http://www.heritage.org/Research/Reports/2011/04/How-to-Transform-Medicare-into-a-Modern-Premium-Support-System

[2] Washington Post–ABC News poll: http://www.washingtonpost.com/wp-srv/politics/polls/postpoll_04172011.html?wpisrc=nl_wonk

[3] unfunded obligations: http://www.heritage.org/budgetchartbook/unfunded-liabilities-entitlements

[4] continue to climb from there: http://www.heritage.org/budgetchartbook/entitlements-historical-tax-levels

[5] would not be adequate: http://www.heritage.org/budgetchartbook/repealing-tax-cuts

[6] Studies show that: http://www.foundry.org/2011/02/28/the-case-for-entitlement-reform-taxpayer-contributions-fall-dangerously-short-of-received-benefits

[7] Kaiser Family Foundation poll: http://www.pollingreport.com/health.htm

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