Paul Ryan is not pro-competition, and his critics are not anti-competition

at 10:11 AM ET, 04/15/2011


(Alex Wong - Getty Images)
The unique value of David Brooks’s columns is that he’s among very few writers who gets invited both to the White House’s meetings and to the Republican leadership’s powwows, and so he’s in a rare position to explain the two sides to each other (and to his readers). Today’s piece is an excellent example of Brooks serving in that role.

That said, in his admirable efforts to let both sides put their best face forward, he sometimes gives too much credit to their theories. Take, for instance, his explanation of Paul Ryan’s approach to Medicare and Medicaid. Ryan, Brooks says, believes that “health care costs will not be brought under control until consumers take responsibility for their decisions and providers have market-based incentives to reduce prices.” It’s true that Ryan does believe that. But it’s not true that that’s what’s worrying so many about his budget proposal.

Henry Aaron and Robert Reischauer, for instance, first developed the idea of “premium support,” which is the policy Ryan says he’s included in his budget. But they don’t think he’s got it right, and both mild-mannered deficit hawks have been blistering in their criticisms. Alice Rivlin worked with Ryan on a plan to bring consumer responsibility and market-based incentives to Medicare, and even went so far as to send it to the Congressional Budget Office. But she’s abandoned the play Ryan includes in his budget, as she thinks it’s ultimately doomed to failure.

If you ask Aaron, Reischauer or Rivlin why they don’t support Ryan, they’ll tell you the same thing: He’s not bringing competition to Medicare. He’s bringing cost-shifting. A plan that brought competition to Medicare would work something like this: Seniors would get a voucher that grew either at the rate of health-care inflation or somewhere near to it. They could then pick from a range of options that Medicare had certified as sufficiently comprehensive and free of scams. If they chose a more expensive plan, they’d have to pay more out of pocket. If they chose a cheaper plan, they’d get the savings back in the form of a tax refund. Thus, they’d have a strong incentive to choose cheaper plans. That’d be the market at work, and it’s something we’re already trying in the form of Medicare Advantage, though it hasn’t worked very well.

Ryan’s plan works differently. Let’s say health-care costs grow at 8 percent a year — a fairly common rate. And let’s say inflation sticks near the Federal Reserve’s target of 2 percent a year. Ryan gives seniors a voucher that starts at $15,000 — for our purposes, assume that’s the exact cost of a health-care plan this year — which grows at the rate of inflation. Let’s say these vouchers prove more successful than any previous experiment with constructing insurance markets and, with no other policies, bring the growth in health-care costs down to 6 percent. In 20 years, that plan costs $48,107. But Ryan’s voucher is only worth $22,289.

Ryan’s plan has cut the growth in health-care costs a bit. But the real way it’s saved money isn’t through competition. It’s by pushing the difference between the size of the vouchers and the real cost of health-care insurance off of the federal books and onto beneficiary budgets. That’s not the market at work, and it’s not cost control. It’s cost shifting. Putting aside that it’s not sustainable, it’s also not particularly helpful. Saving the federal government from bankruptcy by bankrupting millions and millions of families does not solve our fiscal problems.

So Brooks is right that Ryan believes the difference between him and his critics is that he believes in competition and markets and they don’t. But Brooks is wrong to convey that frame uncritically. The concern about Ryan’s plan has nothing to do with opposing competition in Medicare. It’s about opposing cost shifting as the fix to Medicare — or, for that matter, Medicaid. That’s why market-loving budget hawks like Aaron, Reischauer and Rivlin — people who’ve been proposing ways to bring competition to Medicare for more than a decade — oppose Ryan’s plan.

 
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