CBS News / Alex Wong
The central idea behind Paul Ryan’s prescription for Medicare is that it would turn the program from a defined benefit program to a defined contribution program. Think 401k versus pension. The effect would work the same way for the government that it did for the corporations that cancelled their pensions. It would shift risk from the payer to the beneficiary.
Ryan’s vision of Medicare breaks the covenant that Lyndon Johnson forged with the American people when he said, “No longer will illness crush and destroy the savings that they have so carefully put away over a lifetime so that they might enjoy dignity in their later years.” Ryan wants to break that covenant. It isn’t he isn’t smart; I think he is. It’s not that he isn’t creative. The problem is that he has no intellectual capacity for analysis beyond his ideological lynchpin: Ayn Rand. In this, he resembles a young Alan Greenspan. His capacity for overreach, for hubris, for the “young gun-ness” of it all equals Greenspan’s, who was the primary cheerleader for a system of free market excesses that led to our meltdown. And as to Greenspan, even the thought of his vaunted 1990s pronouncements is enough to make one shudder today: “Capitalism is based on self-interest and self-esteem; it holds integrity and trustworthiness as cardinal virtues and [blah blah blah…]”
Paul Ryan, like Greenspan, has got a blind spot big enough to drive a truck through. That blind spot is his unquestioning belief in the power of the free market. His belief in markets goes to quirky extravagance; he requires that all his staff read Rand’s horrid, 1,000-page, Atlas Shrugged. But he’s wrong about markets. Dead wrong.
What Happens When the Free Market Isn’t?
Ryan believes that the market serves to effect transformational price efficiencies based on competition. Such efficiencies—read “prices reductions”—do occur in certain sectors of the economy, sectors like high-tech consumer gadgetry. That’s because those products are products, and they are products based on a rapid obsolescence and improvement curve that serves to trigger repeated price reductions over time. And it doesn’t hurt that they are all made in China. Think big-screen TVs.
Health care, though, is not a big-screen arena. The cost of technology in health care keeps going up, but that is not the nut. Health care reflects the costs of operating gargantuan systems employing armies of nurses, technicians, doctors, and, increasingly, administrators. Those costs are not heading down anytime soon.
The theory behind Ryan’s plan has been misunderstood or poorly communicated by many, including, recently, Bill Maher, who earned a PolitiFact False rating for his critique of the Ryan plan. Strictly speaking, Ryan proposes insurance premium supports. This refers to a periodic payment at some level that the consumer uses to shop for an individual insurance plan. Think of it as a voucher, but a voucher that is not intended necessarily to cover the full cost of a full-featured insurance plan.
The value of the voucher decreases over time due to systemic inflation and particularly because of cost increases in medical care, which will drive up the cost of private insurance. While systemic inflation may be anticipated to remain somewhat stable, the cost of medical care is guaranteed to skyrocket until we do something about it—likely never, or so it would seem at this twisted moment.
Medical insurance companies comprise a sector that has historically been immune to meaningful price competition. Having witnessed large nonprofits attempting to buy group insurance in the marketplace for decades, I have come to understand that insurance companies do not actually compete on the basis of price—and certainly never at a transformational level. Instead, medical insurance companies behave more like a cartel.
Cost savings are achieved mostly by cost shifting back to the company wishing to buy insurance or its employees. We see endless examples of this trend going back to the early 1990’s, but we see no actual competition on the basis of price at any meaningful level. And this is just how it would go for granny with her voucher.
What’s even more crucial is that this market per se doesn’t yet exist. The market for individual policies is nothing but a cruel joke, and I say that as a buyer with years of experience as a consumer as well as an analyst. Consider the cruel joke of starter plans offered to twentysomething women that do not cover maternity care, the one major medical expense they are likely to incur during this decade of their lives. No, the free market in individual health care plans is a cynical ploy to offer little at a very dear cost.
The elephant in the room is that a demographic that begins at age 65 is little more than a decade away from the crushing burden of medical expenses associated with chronic or life-ending disease. Many individuals incur greater medical expenses in the last two months to two years of life than they do during the balance of their lives. No individual insurance market can pool sufficient resources to fund million-dollar medical bills based on $274 monthly insurance premium supports for seniors.
While I don’t see Ryan as an idiot, I see his plan as a cruel joke. It is a plan for unknowable family tragedies. A senior would be a fool to give up Medicare for Ryan’s scheme. I get the feeling that the real numbers don’t matter to Ryan; they matter so little that he hasn’t even run them. Ryan’s plan is a faith-based plan, and that faith largely resides in Ayn Rand. Ryan’s goal is to starve government. The how and the cost don’t matter. This is a crusade. The benefits of the health plans this scheme would spawn would be mere ephemera in the face of the country’s most intractable diseases, like cancer, heart disease and diabetes. These are the diseases that end countless lives, and Ryan’s plan in the end would no more provide a defense against them than 401k’s offer security to the millions of Americans who regard their direly underfunded plans with quiet despair. Ryan’s plan is a recipe for geriatric poverty and misery, nothing more.
While real Medicare reform must tackle the cost of care with new models of care delivery, no one is ready for that. The Democrats proved that by addressing the cost of care only (in the tiniest way) peripherally in the health care reform act. But Ryan is offering a snake oil that would be far more harmful to seniors, and it’s almost is if he doesn’t even understand why that statement is true, so blinded is he by the light of his cherished, adolescent, ideology.