(Bloomberg News) Love it or hate it, Medicare is driving itself and our country broke. The president's proposed policy and that of Paul Ryan, the House Budget Committee chairman, are viewed as miles apart. The reality is different. And the silly name-calling is obscuring their considerable common ground. It's even confusing a major presidential candidate.
President Barack Obama is relying on a special panel, to be formed in 2014, to get Congress to cut payments to doctors and hospitals, keeping the national health-insurance program for the elderly solvent.
If Congress succeeds, older Americans would end up paying a larger share of their health-care costs via the Medicare Part B premium, which is deducted from one's Social Security check using a complicated progressive formula that isn't indexed for inflation. The elderly would also pay, if they can afford it, more for supplemental policies that cover what Medicare increasingly doesn't.
Ryan wants to give Medicare participants money to buy a basic health-care policy, with the amount of money dependent on their pre-existing conditions and with the proviso that no one can be turned down. A panel would decide what the basic policy covers.
Older Americans who can afford it would buy supplemental policies to cover what the basic plan doesn't. As with the president's plan, the elderly would likely pay a larger share of their health-care costs over time.
More Transparency
Both visions for Medicare limit the spending growth in government-paid old-age health care. But Ryan's plan has a more transparent and reliable means of doing so. Under Medicare's current fee-for-service structure, the elderly and their doctors order services and the government pays the fees. Yes, the fees are set by the government, but the medical system can generate more income, even at lower fees per service, simply by ordering up more services.
Ryan's plan is different. It defines the government's contribution to Medicare as the sum of the voucher payments -- and that's it. The government's liability is capped.
Ryan's plan is more progressive than the president's because the poor are, on average, sicker than the rich and will receive, on average, larger vouchers. And his plan, as I understand it, would retain Medicare's progressive premium formula.
Future Retirees
Ryan's plan has been criticized for letting today's elderly stay in the old system, while future retirees wouldn't enjoy the same increases in benefits. His plan should be modified to include today's elderly and to keep Medicare expanding at the right rate -- namely, the growth rate of the economy. One just sets the voucher budget each year as a fixed share of gross domestic product.