Mitt Gekko and Bud Ryan

Bud Fox: How much is enough?
Gordon Gekko: It’s not a question of enough, pal. It’s a zero sum game, somebody wins, somebody loses. Money itself isn’t lost or made, it’s simply transferred from one perception to another.

– “Wall Street”

What Paul Ryan Means to US Healthcare

Presidential Candidate Mitt Romney’s ideological Presidential nominee Paul Ryan, who is the Bud Fox to Romney’s Gordon Gekko, has had a high profile on health care issues. Managing Health Care Costs blog’s overview of Paul Ryan on health care has examined the disruptive implications of Ryan’s economic plan for US healthcare. The Ryan plans generally expect to control costs by “the market,” which means making patients pay substantially more for their care. The bottom line: While Obama’s plan does little to control patient costs, Ryan’s economics, embraced by Mitt Romney, would raise healthcare costs significantly for average citizens and make it even less accessible than it is today.

The significance of his candidacy for US healthcare is that Ryan’s ideology represents an extensive lobby by a powerful elite, and, regardless of who wins the presidential election, healthcare costs, as the biggest driver of the U.S. budget deficit, will have to be addressed, and hard choices made. Even if these choices aren’t as radical in the short term as Ryan’s current plan, there will still be difficult trade-offs and political compromises.

In April 2011 Ryan’s proposed budget, passed by the GOP-controlled House, included provisions to phase out Medicare, drastically cut taxes for the wealthy, raise taxes on the middle class, and gut a range of programs meant to aid the working and lower classes. After an epic backlash, Ryan revised his Medicare plan, turning it into a voucher system rather than guaranteed insurance, as well as turning Medicaid into a block grant system. Here is a review of the consequences of the Ryan plan on healthcare:

1.     Medicare

Proposal: Ryan proposes converting this into a voucher (aka ‘premium support.’)
Federal Budget Impact:  The voucher would not be likely to increase at the same rate of the rate of health care costs increases, so this approach would protect the federal government, rather than the elderly, from health care inflation, and thereby shift those costs on to seniors.
Impact on Costs: The CBO estimated that the average senior citizen would pay as much as $5900 more annually for health care by 2050.
Impact on Coverage: Ryan would raise the age for Medicare to 67 and repeal the ‘guarantee issue’ requirement in the ACA, creating a lot of uninsured 65 and 66 year olds.  We would likely see the elderly in the future simply opting out of care.
Bottom Line Results:  There would be more uninsureds,  and insureds would pay higher costs for less coverage, leaving millions of seniors without adequate health care to fund tax cuts for the wealthiest Americans. According to Managing Health Care Costs, the results would greatly exacerbate the problem of rising health care costs:

Evidence is that when confronted with large out of pocket expenses patients skip both discretionary low-value care, and  critical high-value care.   Much of the cost of care is spent on those with catastrophic costs, and these patients are in no position to negotiate better rates.  I’m guessing that my generation won’t be thrilled to lose the certainty of Medicare when we turn 65 either.

2.     Medicaid

Proposal:  The biggest cuts under the Ryan plan would be in Medicaid, which provides healthcare for the nation’s poor. Ryan would change this to a block grant. The federal financial contribution would be capped, leaving the states to determine eligibility and benefits, and forcing them to drop coverage for an estimated 14 million to 28 million low-income people, according to the non-partisan Center for Budget and Policy Priorities. According to Health Care Costs:
The Great Recession showed us just why Medicaid should be federally funded.  States struggling with lagging tax receipts are in a lousy position to expand health care for the poor just when more people are poor and desperately need coverage.
Federal Budget Impact:   Ryan would shrink the entire federal “discretionary’ portion of the federal government (all besides entitlements like Medicare and Social Security) to 3.75% of GDP.  This includes infrastructure, education, public health, transportation, research and more.   Right now, this represents 12% of GDP, and it’s not been less than 8% of GDP since World War II.
Societal Impact:  The US would not be the center of innovation and advances in health care (or information technology) with such a low level of investment, and would continue to suffer from bad schools and crumbling bridges.   Ryan also opposes federal funding for outcomes research – one of the more promising approaches to slowing the use of unproven technology.
Bottom Line Results: There would be less coverage for needy Americans, whose numbers are growing, and it would likely cause the decline of the US as a center of innovation in health care. According to a study funded by the Kaiser Foundation, it would leave 14 million to 27 million Americans who currently receive care without health insurance.

3.     Tax Code and Social Services

Proposal: Ryan supports big tax cuts for the wealthiest, and will balance these with “closing loopholes.” New tax cuts would come on top of the Bush tax cuts, which provided disproportionate gains to the highest-income households.
Who Benefits: The Ryan budget is starkly regressive, and  includes a number of specific tax cuts, on top of making the Bush tax cuts permanent.  All its new tax cuts are both expensive and tilted toward high-income households:
  •  It would cut the top individual tax rate to 25%, the lowest level since the Hoover Administration more than 80 years ago.
  • It would cut the corporate rate to  25%  and eliminate both the Alternative Minimum Tax and the Affordable Care Act’s increase in the Medicare tax for high-income people.
  • After-tax incomes of people who make more than $1 million a year would rise by 12.5 percent, on average.
  • Combined, the Bush and Ryan tax cuts would provide an annual windfall of nearly $400,000 apiece, on average, to people with incomes over $1 million, and tax cuts for people earning over $1 million would be eight times the average total after-tax incomes of people in the middle 20% of the income scale.
  • The average gain for for middle-income households is just 1.9%, 6 times less than those making over $1 million.

Who Loses:  62 % of the budget cuts would hit vulnerable lower and middle class Americans, including things like cutting Pell grants. Ryan also supports the privatization of Social Security.

Paul Krugman was in early in uncovering the potential consequences of Ryan’s policy positions in a 2010 column that demonstrated how detrimental Ryan’s policies would be for the middle class. He recently wrote:

Ryan’s views are crystallized in the budget he produced for House Republicans last March as chairman of the House Budget committee. That budget would cut $3.3 trillion from low-income programs over the next decade. The biggest cuts would be in Medicaid, which provides healthcare for the nation’s poor — forcing states to drop coverage for an estimated 14 million to 28 million low-income people, according to the non-partisan Center for Budget and Policy Priorities. Ryan’s budget would also reduce food stamps for poor families by 17 percent ($135 billion) over the decade, leading to a significant increase in hunger — particularly among children. It would also reduce housing assistance, job training, and Pell grants for college tuition. In all, 62% of the budget cuts proposed by Ryan would come from low-income programs. The Ryan plan would also turn Medicare into vouchers whose value won’t possibly keep up with rising health-care costs — thereby shifting those costs on to seniors.

Bottom Line Consequences: The Ryan plan is likely to increase the polarization between the richest and the poorest – and income disparity is associated with worse health care outcomes.

Kaiser’s Guide to the Paul Ryan Proposals To Change Medicare

Here is a guide to some of the issues and questions raised by Ryan’s plan  from Kaiser Health News.

Q. What is Ryan’s latest Medicare plan?

Ryan would gradually raise the eligibility age of Medicare from 65 to 67 by 2034, and cap its spending increases at half a percentage point higher than the growth rate of the economy, or the gross domestic product. Ryan’s plan would provide a set amount of money annually for future Medicare beneficiaries — those currently under age 55 — to be used to purchase either a private health plan, or the traditional government-administered program through a newly created Medicare exchange.

Under the proposal all plans, including traditional Medicare, would submit bids for how much they would charge to cover a beneficiary’s health care costs. All plans would include a minimum set of benefits equal to the value of those in the traditional program. The government would pay the full premium for the private plan with the second lowest bid, or for traditional Medicare, whichever is lower. Beneficiaries would have to pay the difference if they chose a plan that set rates higher. There could be one less expensive plan option, and beneficiaries who chose it would get a rebate for the difference.

Private health plans would have to offer coverage that is at least actuarially equivalent to that offered in the traditional, government-administered plan. That means that while the benefits could vary, the value of the plan would have to be the same.

Q. So seniors could stay in the traditional, government-run Medicare program if they like?

Ryan says that is the case, but Democrats and some critics argue that the plan would so fundamentally alter Medicare that it might no longer be a desirable – or affordable — option.

“The real question is what it would cost,” and whether seniors would pay more out of pocket than they do now, said Jonathan Gruber, an economist at the Massachusetts Institute of Technology. He cited the risk the government-run plan would attract the sickest people, driving up its costs, while private plans would lure the healthiest. In addition, medical providers could abandon the program if Medicare cut their reimbursement rates to curb costs.

Q. Would the changes apply to current seniors?

Ryan’s plan would apply only to those under age 55. Current Medicare beneficiaries and those nearing eligibility would continue to get Medicare as it exists today.

Q. Would seniors pay more under Ryan’s plan?

The Congressional Budget Office estimated that Ryan’s original proposal from 2012 would require a typical 65-year-old person to pay a lot more for Medicare by 2030. His latest plan is missing key details, however, so the CBO has been limited in its analysis of the impact.

Although Ryan would give future seniors the option of remaining in the traditional, government-run Medicare program, that program would have to compete with private plans. Critics predict that traditional Medicare could become unaffordable if it attracts the sickest people who require more health care and who, therefore, drive up the program’s costs.

Q. Ryan’s most recent plan is similar to one he co-authored with a Democrat last year. Does that mean it has bipartisan support?

No. Sen. Ron Wyden, D-Ore., did not endorse Ryan’s Medicare plan in the last House budget resolution. It is similar to a plan that the two wrote together last year, but there is an important difference. The limit on federal spending per beneficiary was not as strict in the plan they wrote together: The two had placed the cap at GDP growth rate plus 1 percent. Also, no other Democrat supported their 2011 proposal.

Q. How do Ryan’s proposals compare to Democratic plans?

President Barack Obama and many Democrats have said they agree the federal government needs to restrain the growth of Medicare spending, but they seek to do it without making direct cuts to benefits. Democrats want to preserve the program’s defined benefit basis, meaning that the government will pay whatever it takes to cover a specified set of services. During budget deficit reduction negotiations in Washington, Obama proposed holding Medicare spending to half a percentage point higher than the growth rate of the economy. Romney later adopted the same cap.

As part of last year’s budget negotiations, Obama also proposed gradually raising the Medicare eligibility age – if Republicans agreed to revenue raising proposals. But no agreement was reached.

The health law tackles Medicare spending growth, in part, by creating an expert panel, called the Independent Payment Advisory Board (IPAB), which would be responsible for finding ways to reduce spending if Medicare grows at a higher rate than the target. But the board is not allowed to recommend anything that would ration care or that would change benefits, eligibility or cost sharing for Part A (hospital services) or Part B (physician services). It also couldn’t do anything to change the percentage of premium that seniors pay for prescription drug coverage, or the subsidies that low-income individuals get. The expectation is that reductions would come from medical providers, although hospitals are protected at first.

Q. If both Obama and Ryan are proposing a target rate of GDP growth plus half a percentage point for Medicare, wouldn’t federal spending be the same under both scenarios?

There are important differences. Ryan’s plan is a hard cap on federal spending. He would automatically lower Medicare spending so that it is below the trigger level.

Obama is proposing a target that might not bring federal spending down to that level. His proposal follows an effort in the 2010 health law to curb Medicare cost growth by tying the spending target to the Consumer Price Index in early years, and later on to the rate of GDP growth plus 1 percentage point. Now Obama is proposing to lower the target to the rate of GDP plus half a percentage point. If federal spending per Medicare beneficiary rises faster than that – a determination made by the Medicare actuary – then the expert panel must recommend cuts to Congress, which would go into effect unless lawmakers passed an alternative cost-cutting plan. The cuts would come as a percent reduction in Medicare spending, and wouldn’t necessarily be sufficient to meet the target.

Moreover, the panel’s future may be in question, as Republicans – and some Democrats – have sought to kill it, arguing the board would be able to ration care and would have too much control over Medicare. Obama has yet to nominate the panel’s 15 members, who must be confirmed by the Senate.

Some health care analysts also argue that reducing payments to medical providers could drive them out of accepting Medicare patients, creating access issues for beneficiaries. Richard Foster, Medicare’s chief actuary, warned in the 2012 Medicare trustees’ report that the health law will eventually lower payments to medical providers so much that “Congress would have to intervene to prevent the withdrawal of providers from the Medicare market and the severe problems with beneficiary access to care that would result.”

Read More from Kaiser: 

Paul Ryan’s Plan For Medicare: Essential Reading

Ryan’s Medicare Plan Comes Under Greater Scrutiny

Snap! Wrap: Hard Choices Ahead

US healthcare is really “between a rock and a hard place.” While the ACA (“Obamacare”) expands coverage without bending the cost curve significantly, Ryan’s plan would shift costs to the middle class and seniors, while excluding many more from coverage than are presently covered – a daunting reality for the average citizen.

Both plans share two similarities: first, they are based on “market based,” rather than socialized, care models. Second, neither plan focuses on tackling health care costs. The ACA expands coverage in a cost neutral way, while the Ryan plan seeks to cut the Federal obligations to benefit a privileged few.  Under Paul Ryan’s plan, Mitt Romney would have paid an effective tax rate of around 0.82% under the Ryan plan.

What’s clear is that the discussion about healthcare costs is just beginning, and, once the political hot season is over, the issues of cost control will still need to be addressed. Americans will face important changes in the coming years that are essentially beyond their control. These changes will be the result of sausage making in Washington DC as insurers, medical suppliers, pharmaceuticals, hospital groups and wealthy corporations corroborate to dictate the terms to career politicians.

It would be helpful for people to be better informed of the facts going forward, and less influenced by the superficial political rhetoric of the “right” and “left.” The US faces hard choices no matter which political party prevails. Don’t be fooled by the radical agenda Ryan has put forward on behalf of the economic interests he represents as a negotiating tactic to stake out ground in what is actually a long-range strategy.  For all the political polarization, the two parties are not really that substantially different.