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Thursday, April 21, 2011

My Medicare Deficit Solution

By James Kwak
Baseline Scenario

David Brooks, perhaps realizing that it was a bad idea to swallow a politician’s PR bullet points whole, is now backpedaling. The Ryan Plan, which he originally hailed as “the most comprehensive and most courageous budget reform proposal any of us have seen in our lifetimes,” now has the principal virtue of existing: “Because he had the courage to take the initiative, Paul Ryan’s budget plan will be the starting point for future discussions.”

As I’ve discussed before, the Ryan Plan is just one bad idea dressed up with the false precision of lots of numbers: changing Medicare from a health insurance program to a cash redistribution program that gives up on managing health care costs. Here’s the key chart from the CBO repor

Here’s how to read that chart. In 2030, under current law, a 65-year-old Medicare beneficiary’s health care will cost $60. (Obviously, this is using an index, not real dollars.) Medicare will pay $35 and the beneficiary will pay $25 in Part B premiums and cost sharing. Under the CBO’s more likely “alternative fiscal scenario,” her health care will cost $71, of which Medicare will pay $41. Under the Ryan plan, the same health care purchased in the private market will cost $100; “Medicare” will give her a $32 voucher, and she’ll pay the last $68 on her own.

The bottom line is that the Ryan Plan increases beneficiary costs more than it reduces government costs. In a weird sense, it’s a bizarrely pro-government plan: it helps the government’s bottom line at the expense of ordinary people.

So what should we do? Most importantly, we have to recognize that there are two separate problems, and they are not equal. The primary problem is health care inflation. The secondary problem is the long-term Medicare deficit. That’s a secondary problem because it’s largely a result of the primary problem. 

Continue reading here.

And here is the rest of it.