…Doesn’t make it any less egregiously wrong.
When I introduced this blog a week ago, I said that one reason for it was to help people sort out some of the extremely misleading assertions partisans are making these days.
Rep Paul Ryan seems intent on keeping me very busy. On Meet the Press today, he repeated this little chestnut he’s been tossing around lately regarding the R’s treatment of Medicare in the budget plan he authored:
“Our plan is to give seniors the power to deny business to inefficient providers…their plan [Affordable Care Act] is to give government the power to deny care to seniors.”
Just a few little words…but there’s so much wrong with this—the logic is so upside down—it’s hard to know where to start. I’ll go after the first part here and leave the second part—‘their plan’—for later.
To get why this “market solution” can’t work, you have to understand a bit about how Ryan’s plan changes Medicare. As is by now pretty widely appreciated, including by many in his own party, the plan ends guaranteed health care coverage for seniors and replaces it with a voucher for them to shop for insurance on the street.
Importantly, the value of those vouchers start well below where they need to be to enable seniors to afford coverage comparable to Medicare today (in fact, beneficiaries costs would have to double), and their value falls increasing behind coverage costs over time.
Suppose you send me to the grocery store to buy you a gallon of milk. Milk costs $3.50 a gallon but you give me $2. I spend the whole day “denying business to inefficient providers”—i.e., grocers who all charge more than that—and at the end of the day, bring you back a pint.
Now, instead of milk, where I’ve got the information I need to be a smart shopper, suppose you give me the same under-priced voucher but ask me to bring you back a plan for treating that strange pain you’ve been experiencing on your left side on humid days.
There’s no “denying business to inefficient providers” in the Ryan plan because there’s no market discipline that average folks with incomplete information armed with an inadequate voucher can enforce on a private health insurance market that’s…well, different.
I’ll deal with the other part of Rep. Ryan’s misleadingly mendacious medical mantra manana. Check this out in the meantime if you’re so inclined. 
We have already tested Ryan’s plan. Our current health insurance system give people “the power to deny business to inefficient providers”. Does it work? Clearly not. Health insurance prices are rising faster than just about anything else. Why is that so hard for people to understand?
Why is that so hard for people to understand?
A combination of powerful interests not wanting anyone to understand and ideological blinders on those not in the reality based community.
Russ,
Jared’s giving you a basic lesson in capitalism, one which you desperately need.
Paul Ryan gets money from the health insurance oligopoly (Blue Cross/Well Point, Aetna, Humana, Cigna….). Unregulated monopolies and oligopolies are the enemies of competition, innovation, quality, and a meritocracy. (See what they’ve done to the U.S. Patent Office.)
Unlike the health insurance oligopoly, physicians, hospitals, nurses, allied health professionals, Big Pharma and Medical device makers all provide value to patients. The health insurance oligopoly no longer does. And, as you so helpfully pointed out, the health insurance oligopoly also can’t (don’t have any incentive) to hold down costs.
We need to stop rewarding the failure that the health insurance oligopoly is and promote competition among the health care supply chain that really delivers value to patients.
Ryan’s argument about denying business to inefficient providers is clearly absurd. The only somewhat coherent theory in support of Ryan I can think of is that if we drastically cut the money spent on healthcare, prices should come down. Of course, that’s because we would be getting much less healthcare, but you can’t have everything.
Government healthcare is much more efficient than private insurance, so Ryan would be a move in the wrong direction. CBO estimates it would result in a massive increase in healthcare costs (govt plus spending by individuals). One reason is the better knowledge you cite. Another is that government has more bargaining power than any private insurance company. Government administrative costs are much lower – they don’t have to spend a lot on underwriting (denying coverage), they don’t have to make a profit, etc., etc.
The Ryan plan is a genuinely terrible idea.
You write: “the value of those vouchers start well below where they need to be to enable seniors to afford coverage comparable to Medicare today ”
I’m having trouble understanding this. When you say “Medicare today,” do you really mean “a projection of Medicare expenditures in 2022, if we keep the basic fee-for-service structure, and expenditures grow as we expect them to?” Or do you actually mean “the cost of the actual care that Medicare provides in 2011.”
How much do we spend on Medicare in 2011? How much (in 2011 dollars) does the Ryan plan project we would spend in 2022?
These are real questions, because I’m having trouble understanding this debate.
Here’s a good explanation from Politifact: http://www.politifact.com/oregon/statements/2011/may/06/david-wu/david-wu-highlights-worries-over-paul-ryans-medica/
The relevant section:
“CBO says that the most generous $8,000 voucher provided by Ryan’s plan would cover 39 percent of the cost of the average private plan for a 65-year-old in 2022. Which means the plan actually costs about $20,500 and that beneficiaries would be on the hook for about $12,500 of the cost.
According to calculations by the CBO and Kaiser, a typical beneficiary would have to pay $6,150 out-of-pocket in 2022 if Medicare essentially remains the same as today. Under Ryan’s plan that out-of-pocket cost would have jumped to $12,500, which is an increase of $6,350.”
Thanks very much for the reply.
If I understand right, this means that when you say “comparable to Medicare today” you really mean “comparable to a projection of Medicare in 2022.” If I am not mistaken, the services Medicare provides in 2011 cost substantially less than the projection for 2022?
I’m still wondering how the expenditures under Ryan’s plan would compare to what we actually spend today, as in 2011. Do you know?
(I’m afraid I find your usage to be quite misleading and potentially confusing to a lot of people. If you say “Medicare today” I think you should mean “Medicare in 2011.” I’m a little disappointed, quite honestly. I don’t favor Ryan’s plan, but I do favor getting our fiscal situation in order, and I’m sick of all the misleading BS from all sides.)
Ryan’s Medicare plan starts in 2022, ergo the date and dollars on the graph are for that year. And the comparison is structured to be comparable to health services covered by Medicare today. Seems clear and unspun to me.
And because the value of the voucher grows a lot more slowly than we (meaning CBO) expect health costs to grow, the difference in what seniors have to pay to maintain comparable coverage grows each year.
Are you saying that in 2022 – 11 yrs from now, seniors will have $8K to spend on their healthcare?
OMG Ryan is more delusional than I thought.
Of course there is nothing wrong with making comparisons of 2022 projections. I don’t see anything misleading in the link you provided me
What is misleading is saying “today” when you mean 2022, rather than 2011.
I’m still wondering about how the Ryan plan really compares to “Medicare today”–how much do we spend on Medicare in 2011, vs. how much (in 2011 dollars) does the Ryan plan project we would spend in 2022?
I’m not sure if you don’t answer my question because you don’t know the answer, or because it would make the Ryan plan look less bad.
Let me be more precise, in the interest of “sorting out some of the extremely misleading assertions partisans are making these days.”
I think when you say “coverage comparable to Medicare today,” people might well read that to mean “the Medical goods and services provided by Medicare today. But I think that is not what you mean.
I would guess that the real price of the bundle of Medical goods and services provided in 2011 will not increase much, if at all. Indeed it might decrease as popular drugs go off-patent. Rather it is the change in the bundle that will drive cost growth between now and 2022.
(Please let me know if I’ve misunderstood you or if I’m missing something.)
You wrote about WITT and YOYO before the last presidential election. Since that time, we now have YOYO on steroids. I live in Kansas. You have no idea what’s being done here to civil rights and to the financial safety net people had. The legislature has raided the state pension fund to pay for special education. They claim they’ll pay the money back, but I seriously doubt it. Like other states, they want to do away with the current pension system for teachers. Legislators, judges, police and fire employees are being left alone. Teachers are being singled out for absolute YOYO.
For those interested in the WITT/YOYO reference, see here.
Good Post. Love the milk analogy, and you are to be congratulated on your alliteration “misleadingly mendacious medical mantra manana.” Might have to borrow that one some day….
Crap. That’s a really good sound byte. It’s completely wrong for the reasons pointed out in this articles. But Americans vote based on sound bytes, not articles. If Dems can’t come up with a better sound byte, forget about it…Ryan’s plan will win the day.
A question for Jared Bernstein:
Sir, Is in fact a form of Medicare for all [with supplemental insurance policies to cover elective procedures] fiscally and socailly responsible?
The Medicare and Soical Security schemes operate on +95 cents on the dollar but the pools are drying up. and Health care as a share of GDP would drop by X%[?] over 10yrs; thus freeing up monies to reestablish our maufacturing base.
Or is corporate America to enamoured with market forces that only serve corporate America?
Yes, who can better identify and refuse inefficient providers, grandma or professional health care buyers at the corporate, state or federal level. Why, when Rep. Ryan explains it, it’s all so simple! Having a heart attack? Hit the Google to find the best providers! Easy!
Dr. Bernstein
I am no economist (just a software engineer) but I want to understand your milk analogy from a logical standpoint. If enough number of people take a $2 voucher to the grocery and all of them start bringing back a pint, wouldn’t the manufacturer be forced to meet them at least half way by bringing the price down from $3.50 to something closer to $2? After all they’d rather sell gallons than pints, don’t they?
(apologies for the naivete and what not)
First, let me say that there are no bad (or naive) questions in this biz. There are, however, bad answers. And of course I won’t be able to get to all the questions.
The intuition behind your question makes sense but it’s not quite the logic of this issue. It’s true that if there was a contraction in demand for something, the price would decline. But that’s not the case here.
You didn’t send me out to get a pint of milk because you like milk less than you used to. You want a quart, but you didn’t give me enough to pay for a quart. You will thus presumably be unsatisfied with the pint I bring back. So you’ll either live (unhappily) with less milk or give me what’s needed next time you send me out shopping. It’s still a sellers market and buyers are “price takers” not “price makers.”
The key point is that there’s no reason to expect our need or demand for health coverage to decline just because the R’s give us an inadequate voucher. And in fact, the logic of the price savings in the R’s plan (and Ryan’s rhetoric) is not that we’ll settle for less but that we’ll make up the difference out of pocket.
Is this in fact true? I thought one of the fundamental issues behind our health care cost inflation is an overconsumption of services of marginal or no efficacy.
That dairy farmers have very cleverly launched a marketing campaign to drive up demand for milk and milk based products in an effort to capture all of the government subsidy for milk consumption..
I don’t know if it’s true or not, but it seems sort of logical that just as a production subsidy would encourage over-production, a subsidy of consumption would encourage over-consumption.. Any thoughts on this? The same argument would apply to college costs..
What I find amusing is that this is the same sort of large scale, centralized tinkering that most “traditional” conservatives would find uncomfortable..
Yes; I wonder, does Ryan think that if Congress cut food stamp allowances by 60%, food prices would decline?
If food stamps accounted for as large a percentage of the food market as medicare does for health care, it seems reasonable to think it would..
The reason that Medicare expenditures are going up is not that *prices* of medical goods and services are going up, but that beneficiaries consume ever more and fancier goods and services. See this CBO report, for example:
http://www.cbo.gov/ftpdocs/81xx/doc8193/06-06-MedicareSpending.pdf
If we cut food stamps, then food *prices* might not go down, but food *expenditures* probably would.
This whole debate is really confusing because people keep using the term “costs,” which sounds like it means “prices” but usually means “expenditures.”
Why has no one discussed the really critical difference between Ryan’s Plan, Medicare and every other plan, which is that those plans are for group coverage, without any individual underwriting whereas the Ryan Plan would presuably involve individual underwriting and hence rates based on age, health condition etc.
In this scenario people like John McCain, to use a prominent example whose health condition we know, would have premiums so high he could not afford insurance. Individuals with McCain’s health history can only get health care coverage from Medicare or the Government Employees plan.
So there are several things about Ryan’s plan that leave me queasy.
1) The delusional mindset that people with $8K in vouchers for health care will suddenly assume the power to sway providers and insurance companies 2022. We have Medicare today because seniors had no power in the marketplace back in the early 1960s.
2) The $8000 voucher – how many seniors pay just $8000 for health care in a given year? My husband’s broken ankle was billed at $20K (and we all know the hospital/HCPs didn’t get nearly that much, but still…) Can’t even imagine the cost for cardiac/stroke/alheimers/cancer care for seniors with $8K to spend. What happens when their medical costs go beyond this figure?
Again, hard to have power and might in the marketplace when you’ve got nothing to spend. And how much will $8K get you in 2022, after gas and commodities have had their way with consumers’ budgets?
3) What will Ryan’s plan do to make health care costs more transparent? Having tried very hard to get pricing for such simple things as generic antibiotics and being told that I need to purchase the product before pricing can be established, I have a hard time envisioning Ryan’s world, where the elderly can fully research and comprehend the pricing and services they’re purchasing with their $8K voucher.
[I have been self-insured for the better part of a decade, so my health care experience has dampened my enthusiasm for absurd rhetoric used by canny and overly ambitious politicians regarding health care reform]
With due respect Dr. Bernstein, can you explain how this exact same reasoning does not apply to the premium subsidies in the ACA? Are the insurance exchanges just magic?
We’re talking Medicare here–that’s what Ryan was talking about and it’s what I’m talking about. And that’s not the purview of the exchanges. They’re for the non-elderly population who don’t get health coverage through the job. As such, they’re alternative to the existing individual market. The exchanges give these individuals a chance to pool their purchasing power in a way that should help them get better deals.
Under ACA, Medicare provide guaranteed, fee-for-service coverage, as it does today…that’s very different from Ryan’s plan, which ends the guarantee.
Certainly I understand the distinction in purpose between Medicare, the Republican plan for Medicare, and the ACA exchanges, but again, with respect, I don’t think that addresses my question:
What gives you confidence that the subsidies and exchanges will be of any more use to the uninsured young in being able to afford health insurance than the vouchers would be for seniors under the Republican plan?
Perhaps you don’t think they would be. Certainly that is my view.
Mr. Bernstein,
Perhaps I have missed it but it would be useful to have the date/time you posted this piece. For instance, you stated ‘Rep Paul Ryan seems intent on keeping me very busy. On Meet the Press today’ … I am not sure if you are talking about today (5-23-11) or yesterday (5-22-11) as I don’t watch tv.
The date may be listed elsewhere on this site, but having it posted on the same page as this Post would be helpful. Again, I may have missed it and it may seem mundane but I like to understand the chronology of events.
Thank you.
Is that all you have to say ? I didn’t click the links, but it seems to me that you have barely begun to explain the ways in which Ryan’s slogan is false.
You don’t question his claim that the point of the ACA is to have bureaucrats deny care to seniors. You just let that pass. Really (check the post). It might be worth mentioning that the PPACA includes no reduction of Medicare benefits. Yo mgiht even have mentioned that it includes eliminating the plan D doughnut hole. Since you are a former Obama admin economic advisor, your letting such claims pass is potentially very damaging.
This makes your statement about helping “people sort out” especially ironic. The post does not seem to me to be written for the general public (you know the public a plurality of whom oppose the PPACA). It isn’t like all misleading statements about the PPACA have been effectively rebutted and so we can move on to talking only about the Ryan plan.
On Ryan’s claim about the Ryan plan, people wouldn’t take the voucher to health care providers, they would take to health insurance companies. If they weren’t willing to pay the difference between the voucher and Medicare, they would get relatively cheap insurance — which restricts their choice of health care providers. Here I think Ryan is afraid to say “health insurance companies,” because he knows that people do not want to deal with them. He is sure he knows better (and he has a health care plan which is not at all like his proposal — another false claim) and that consumers just don’t understand how wonderful the individual market for health insurance is for consumers.
Ah yes, we can see how efficient the individual market in health insurance is. It isn’t some new idea that Ryan just thought up. It exists and it is very inefficient. Of course this is true partly because of adverse selection. My guess is that youngsters of 65 with relatively few pre-existing conditions might do better for themselves going uninsured and not sharing the pool with 75 year olds and people with serious chronic diseases and such. The result is huge efforts to screen in order to pick cherries. This is hugely costly. There is a reason individuals pay much more per policyholders than firms (and it isn’t just bargaining power but yeah what about bargaining power).
“plan ends guaranteed health care coverage for seniors and replaces it with a voucher for them to shop for insurance on the street”
No it doesn’t. It permits them to choose from one of a number of government-approved providers. They never receive a “voucher”, so they have nothing with which to “shop on the street”.