The bottom line is that he proposes to throw seniors into the free market for their health care by using Medicare funds to provide each senior with a voucher to purchase a private health insurance policy. The thought is that the federal government will pass the risk of health insurance onto the individual and by doing so fix the costs that the government pays for providing health care for the elderly and disabled.
The National Review hails the plan as paradigm changing, and even left-leaners like Ezra Klein give it kudos. There, of course, are two questions: 1) will it work?, and 2) is it politically viable? Short answers: 1) sort of, 2) probably not yet.
Will it work? The stated goal is to reduce the federal budget outlays for health care, so yes it will work because the federal government will have complete control on how much each voucher will be. Of course, it will not provide any more access to medical care and will likely reduce access for some who choose to go without insurance.
The Economist explains that, by design, Ryan's plan forces seniors to pay on average $2900 out of pocket for a private plan that will be no more comprehensive than the current Medicare plan. This puts market economics into the system which free marketers say will reduce costs. Opponents will argue that some seniors will either choose or be forced to go without coverage because of this marginal cost. I suppose we could impose low income subsidies, but that changes the CBO estimates for the Ryan proposal.
Is it politically viable? Even the stalwart tea-partiers will cry that they love socialism when it comes to Medicare. Seniors vote-- and they will never support anything that is going to take money out of their fixed income paycheck. Only as part of a more comprehensive budget reconciliation could this pass and only an imminent federal budget default would trigger such a draconian discussion.
Is Paul Ryan conservative? While he claims to be a fiscal hawk, I would note that he voted in favor of Medicare Part D which is the largest expansion of government entitlement in his lifetime. It seems odd that he would favor expanding an entitlement program that he now wants to eliminate. Furthermore, he voted against Medicare drug price negotiations for seniors which, in effect, forces the federal government to pay full price for medications. I wouldn't call this fiscally conservative.
Economist Howard Gleckman points out that some of Ryan's assumptions about tax revenue are unrealistic. Rep. Ryan expects to eliminate the entire national debt in 70 years-- a dauntingly impressive feat- but, as Gleckman says, "[the] CBO assumed this wonderful outcome would occur only if the revenue portion of Ryan’s plan generated 19 percent of GDP in taxes. And there is not the slightest evidence that would happen."
But just because Ryan's plan would not fulfill it's most bold prediction does not negate it's potential value in reducing Medicare costs to the federal government. If it reduces costs, great. The problem is that such a plan would effectively change the mandate of Medicare to care for all seniors regardless of their ability to pay, and essentially make Medicare a type of non-guaranteed pension plan since there would be no guarantee that an individual could ever be covered with the determined voucher.
Of course, I'll take this opportunity to climb atop my soapbox again about EMTALA (Emergency Medical Transfer and Active Labor Act) laws that require emergency management of all patients. Under Ryan's ideologically pure free market reform I would argue that EMTALA would need to be repealed, and I find it disingenuous that Paul Ryan never broaches this topic. The CATO Institute calls EMTALA the single largest driver of health care inflation since it acts as an "accidental safety net" and tends to remove the moral hazard of remaining uninsured. When a senior with pre-existing illness chooses to forgo expensive coverage, or gets turned down, will hospitals and physicians be required to care for them without payment?
Another issue is the relative cost of private insurance versus public care. Many studies have shown that the administrative costs of Medicare are dwarfed by those of private carriers and Ryan's plan would put every Medicare recipient on a private plan, so by deduction the administrative costs of providing medical care will rise- a lot. Even Ryan himself admits in this interview (below; fast forward to the 5:00 mark) that public option coverage would be cheaper when he was arguing against it as anti-competitive during the health care debate last summer.
In conclusion, I give Rep. Ryan marks for creatively attempting to tackle an as yet insoluble problem. I don't think his plan would be politically viable because it changes the entire purpose of Medicare. Before 1965 many seniors and disabled simply went without insurance and I'm sure we won't accept this scenario in the future. He is effectively rationing care using market economics and I think is a cop-out and will only lead to more misery for seniors and the infirm. Rationing is necessary but should be done upfront, out in the open and should not be based on an individual's ability to pay. Not only would they need to deal with being sick and old, but now they would be left to navigate the treacherous health care "free market" with their lives at stake. I have argued previously that health care does not follow market principles in the classic sense and it screams for central regulation just like any other utility.
From the Economist article:
Mr Ryan has put forward a serious proposal for shrinking medical-cost inflation and hence shrinking the long-term federal budget deficit. It does so by ending America's provision of first-rate health care to all seniors. Rich seniors will still be able to afford high-quality medical care. Poor seniors won't. They will suffer more and die younger. A different approach to solving America's health-care cost problem might involve letting Medicare use its vast bargaining power to negotiate lower rates with the providers of pharmaceuticals; establishing a commission of experts (MedPAC) to rate the effectiveness of medical procedures, to avoid wasteful incentives in the current fee-for-services medical model; and establishing bundled payments for disease management, to achieve Mayo-Clinic-like efficiencies in care while improving quality. Those are the models proposed in the Democratic bills currently in Congress. But they're really complicated and hard to understand—they make for a bill that's 2,000 pages long. And everybody knows the American people hate that. Mr Ryan proposes to simply slash Medicare spending and balance the budget on the backs of poor seniors. That'll work too.