The impossible assumption at the heart of Ryan’s budget

The more I look beneath the hood of Ryan’s budget, the weirder — or, to be more accurate, less realistic — things get. Ryan-Rivlin held the growth of its Medicare vouchers (or premium support, or whatever you want to call it) to the rate of GDP growth +1%. That’s low, but it’s plausible. Health-care costs typically grow at GDP+2% or 3%.

But here’s the catch: The way GDP gets calculated includes inflation. So think of GDP+1% as the rate of inflation plus the rate of productivity growth plus one percentage point. With me so far?

Ryan’s actual budget unexpectedly holds both Medicare and Medicaid to inflation, not to GDP+1%. So let’s say that in 2024, inflation was 2 percent, productivity growth was 2 percent, and health-care costs grew at 6 percent. Under Ryan-Rivlin, Medicare and Medicaid would grow at 5 percent — a bit less than health-care costs in general, but not that much less. Under Ryan, Medicare and Medicaid would grow at 2 percent — beneficiaries would have to make up the difference.

This can all seem like so much gobbledygook, so here’s the bottom line: it’s totally unrealistic — and I say that as a cost control optimist. Look at the other health-care plans that have been proposed: none of them suggest they can get the growth of Medicare or Medicaid down to inflation*. But that’s where a lot of Ryan’s savings come from. Which is to say, either those savings aren’t real or we’re assuming America is going to abandon seniors and the disabled in a way that has no recent precedent.

And you don’t have to take my word for it. Alice Rivlin, whose surname accounts for the “Rivlin” in “Ryan-Rivlin,” told me the same thing: “There is no way we can control medical spending at the inflation level. It’s going to rise faster than that.” This, she said, is one of the reasons she’s not able to support the version of the idea in Ryan’s budget (tune in later for our whole interview). When I asked her what would happen if Ryan’s budget was implemented, she said it would mean “a massive cost-shift over time” as seniors and Medicaid beneficiaries had to pay the difference between what their insurance premiums and the support Ryan’s budget was giving them.

This is an important point: there’s difference between cutting costs and shifting them. As the Congressional Budget Office noted, a lot of what Ryan’s budget does is shift costs from the federal budget to someone else’s budget: Medicaid’s costs moves to the states, and then when the states cut it, to the people who need it, or to their families. Medicare’s costs move to seniors, or to the families of seniors. The budget doesn’t have a clear theory for how to spend less on health care. It has a clear theory for how the federal budget can spend less, and other people can spend more. But that’s not good enough.

*It’s worth noting that the threshold for the Affordable Care Act’s tax on high-value, employer-provided health-care insurance plans increases at the rate of inflation. But as many people have observed, the point of that tax is to ratchet back the tax preference for employer-provided health insurance, and particularly for expensive employer-provided health insurance. It’s thus built to apply to more plans over time. Importantly, the tax isn’t claiming that cost growth will fall to inflation.