“No Man’s life liberty or property is safe while the legislature is in session”.

- attributed to NY State Judge Gideon Tucker

Friday, February 18, 2011

Paul Ryan & Alice Rivlin's Defined Contribution Fix for Medicare

I have read a few references recently to Paul Ryan's and Alice Rivlin's new Medicare idea which is quite close to my own beliefs, expressed in earlier posts, that the program should never have been anything but a defined-contribution voucher approach. This National Review piece sheds more light on Ryan's and Rivlin's proposal. It reads, in part,

"Rep. Ryan has written an explanation of his approach for the Economix blog that you can find here:

In order to make good on Medicare’s promise, I’ve put forward reforms that offer future seniors the same health coverage options I enjoy as a member of Congress. My reform plan makes no changes for those 55 and older, as efforts to save this program ought not disrupt benefits for those in and near retirement. For those now under the age of 55, Medicare would provide seniors with a payment, a list of Medicare-approved coverage options and the ability to choose a plan that works best for them. The Medicare payment would be adjusted so that the wealthy receive a lower subsidy, the sick would receive a higher payment if their conditions worsen, and lower-income seniors would receive additional assistance to cover out-of-pocket costs.

It is possible that Rivlin-Ryan will prove so inadequate to providing decent coverage for Medicare beneficiaries that political pressure to make the benefit more generous will prove overwhelming, a charge that has been levied against the payment reductions under PPACA. It is also possible that a fixed subsidy and voucher-like structure will improve the cost-effectiveness of medical care. The real debate we’re having is over which approach is more likely to yield greater cost-effectiveness over time: a centralized, IPAB-driven approach or a decentralized discovery process.

I fear that Alice Rivlin and Rep. Paul Ryan are in for a bumpy ride. They are taking on deeply entrenched ideas and deeply entrenched constituencies. I’ve been told that some version of Rivlin-Ryan may become a central part of a Republican budget proposal. If that really is true, congressional conservatives will have proven those of us who’ve at various points doubted their seriousness and sincerity about reforming the welfare state wrong. We’ll see."

At issue, it seems, are two points.

One is that, left to decide how to spend scarce, defined contribution dollars from the government on their health care, people may actually choose to forgo things they'd otherwise consume if unconstrained financially.

Wow, is that a surprise?

The second is that we may just have to learn to live with overall national constraints on what government can afford to pay in subsidies to people for medical care. Not every person will be able to get the government to pay for fixing every ailment.

Which would be why it's wise to let people have control over the allocation of scarce resources for medical care provided by the government.

If people can't figure this out, then we're toast. A nation can't remain competitive when it's largest expenditures are transfer payments from younger, working taxpayers to older, retired, non-value-adding seniors.

Sorry, but that's just common sense. There's no way we can afford this notion, as I explained in this post, that the aged or retired are somehow above sharing economic sacrifices with the rest of the nation.

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