The Ryan Plan and Medicare Out-of-Pocket Costs

By Victor Morawski – Would the Ryan Plan’s Medicare reforms actually result in higher out-of-pocket costs to seniors? This charge by its critics overlooks one of its most important cost-controlling features.

While much of the criticism from the Left greeting the newly announced Medicare reforms contained in The Path to Prosperity, the new budget proposed by Rep. Paul Ryan and the GOP, have been mostly empty rhetoric, recent charges by columnist Ezra Klein aimed at the cost savings of the Ryan plan have contained more substance.

Comparing the Ryan plan to ObamaCare, The Affordable Care Act, Klein portrays it as a plan whose “savings are largely an illusion” because it has “just taken the government’s medical-costs problem and pushed it onto families” who will ultimately be paying 70 percent instead of a current 30 percent of their Medicare insurance costs out-of-pocket — the real reason that the deficit goes down under the Ryan plan according to him.

He knocks Ryan’s comparison between Medicare under his reforms and the current Federal Employee’s Health Benefits Program enjoyed by members of Congress saying that recent costs in that plan have outpaced both inflation and Medicare. The implication is clear: How can reforms based on such a plan as a model really control costs and reduce the deficit? By contrast, Klein champions ObamaCare which he says does both.

First of all, Klein mistakenly portrays the Ryan plan as a voucher plan which puts the entire responsibility for Medicare insurance cost savings squarely on the backs of seniors as consumers. He maintains that as individuals they have to “figure out how to save the money” instead of the premium-support plan it is, modeled after the Congressional plan where insurers, not individuals, are paid premiums by the government.

What Klein fails to note is that the Ryan plan has a free market solution to holding those Medicare insurance premium costs down: interstate competition among insurers. In fact, the Ryan plan “[a]llows individuals who reside in one State to buy a more affordable health insurance plan in another State.” And insurers “would be able to sell their policies to individuals and families in every State.”

This common sense reform, long resisted by Democrats because it puts more power into the hands of private companies and individuals and less in the hands of government, to the eyes of any objective observer, promises to lower premiums in the arena of health insurance much as similar interstate competition has already done for them in that of auto insurance.

So Klein’s argument — and a similar one advanced by other liberals in the Huffington Post — to the effect that seniors will end up paying higher out-of-pocket costs for their Medicare premiums because Ryan’s plan indexes the premium subsidy for Medicare to inflation and health insurance premiums have been outpacing inflation is largely rendered moot if interstate competition can hold premium costs down as expected.

Of course, the ObamaCare solution to holding premium costs down is the dreaded individual mandate (forcing more people into the pool), which fortunately would be repealed under the Ryan Plan.

Also repealed under the Ryan Plan would be ObamaCare’s vast expansion of Medicaid coverage to the nonelderly with incomes falling below 138 percent of the federal poverty level thus eliminating this major source of pressure on Medicare costs imposed by those viewing health care reform as a major vehicle for wealth redistribution.

Gutting Medicare as ObamaCare proposes to do to the tune of $500 billion over the next ten years will be unnecessary if this reason for the redirection of funds allocated to it is taken off the table. Smaller reductions in Medicare costs brought about by free market reforms can still produce significant deficit reductions under Ryan’s Plan.

Victor Morawski, professor at Coppin State University, is a Liberty Features Syndicated writer for Americans for Limited Government.

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