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Paul Ryan responds

By Ezra Klein,

Susan Walsh AP Earlier this week, I listed eight questions that I wanted to ask Paul Ryan about his budget. In response, his office helpfully sent me written responses to all of the questions. I’d still prefer to do, and have once again renewed my request for, an actual interview where we can discuss these issues in detail and I can challenge him on some of these points and he can challenge me on some of mine. But for now, here are Ryan’s written answers. For clarity’s sake, my questions are italicized. His text is left plain. Later today, I’ll write a post responding to some of his points. Ryan starts off:

Let’s start where we agree: We have no choice but to slow the unsustainable rise of health-care costs and to improve the quality of health care in America. If we don’t, we are headed for a future of bankrupt government programs, crisis-driven governance, much higher taxes, and a lower standard of living for all Americans.

The question is how do we control costs in health care, without sacrificing quality? This question is the source of an intense debate across this country. Some put their faith in price controls imposed by an empowered government. Others put their faith in cost controls driven by empowered consumers.

While we will not likely resolve this debate in one exchange, I remain hopeful that we can advance a constructive dialogue on the critical question of how best to save Medicare.

1) In the Roadmap for America’s Future, you capped the growth in Medicare spending between inflation and medical inflation, In Ryan-Rivlin, you held it to GDP+1 percentage point. In your budget, you’ve brought it down to inflation, which is much lower, but you haven’t added any new cost controls. What makes you believe your targets are achievable? And what do we do if they’re not achieved?

Experience and economics support the view that the best way to control costs without sacrificing quality is to give consumers more power to act as a check on erratic pricing, deteriorating quality and excess care. Competition and consumer choice are the most powerful cost-control mechanisms ever devised. Our plan includes both, and that’s why we are confident that our targets are achievable.

We have evidence that this works. Our premium-support plan is modeled after the Medicare Part D prescription-drug program, in which providers compete against each other for seniors’ business. Medicare Part D came in 40 percent below cost projections done at the time of enactment – that’s almost unheard of for a government program.

Rather than shifting costs, as some have suggested, our reforms will actually bring costs down by directing financial rewards toward high-quality, low-cost providers of care and away from inefficient providers. This is a task government bureaucrats have proven time and again they cannot achieve – not because of any personal failings on their part, but simply because government isn’t suited for this task. Politics always intervenes. Part D has come in under budget every year, while fee-for-service Medicare is on pace to go bankrupt within the next ten to 13 years. One is driven by price, competition, and choice; the other by bureaucracy and politics.

So I disagree with the premise of the question. Our reform has real cost control in it, the kind that will actually bring about more efficient and effective health care.

Some have argued that we can somehow fix this by removing elected officials from the process of managing Medicare. That we should instead empower unelected bureaucrats to achieve the results our political system has been unable to produce. Even accepting the dubious proposition that we could separate these bureaucrats from the influence of politics, or that such a thing would be consistent with our principles as a nation ruled by a constitutional, limited, and democratic government, I do not share your faith in the ability of small groups of experts to make wise decisions about treatment options on behalf of tens of millions of seniors.

That is why the House-passed budget gives patients the power to choose a guaranteed coverage option that works best for them; provides them with the financial support to purchase that plan; gives additional support to the poor and sick; gives less support to the wealthy; and limits the overall growth of the program so that we bring health-care costs down and save our country from bankruptcy.

Medicare spending continues to grow under our plan — now and into the future. Medicare nearly doubles in size over the next decade, eclipsing $1 trillion at the start of the next decade. Medicare grows in nominal terms, it grows in real terms, it grows as a share of the budget, and it grows as a share of the economy. We agree that Medicare should grow, and we also agree that it cannot grow at its current unsustainable rate. But we disagree regarding the exact growth rate and how to achieve it.

2) The main cost control in your plan is that seniors will purchase regulated private health insurance on an exchange. But the Medicare Advantage program, in which seniors choose regulated private insurance options on an exchange and receive the savings through increased benefits, has proven more expensive than traditional Medicare. Why will your exchanges achieve such dramatically different results than the Medicare Advantage exchanges?

Here’s why: Many Medicare Advantage plans still operate using the same flawed fee-for-service model as Medicare, but without the price-control mechanism that Medicare uses to artificially reduce expenses. Medicare Advantage HMOs, on the other hand, have taken a different approach: They have developed innovative ways of bundling services and succeeded at providing the same level of benefits as Medicare, but at a lower cost. The incentives that our plan puts in place are not designed to further entrench the fee-for-service model. Instead, our premium-support reforms encourage the kind of low-cost, high-quality coverage that the Medicare Advantage HMOs provide.

The Medicare exchange — with its regulatory oversight — establishes the basic ground rules for combining the power of market forces and the critical role of government oversight. The exchange itself isn’t the cost-containment mechanism. Rather, costs are controlled under our plan by letting future retirees choose health-care plans that work best for them, inviting competition into a program where it currently does not exist. An exchange helps facilitate that process, while recognizing the important role government plays in overseeing and securing the delivery of guaranteed, affordable coverage for America’s elderly.

3) Alice Rivlin, your original coauthor on the premium-support model, believes the exchanges in your plan are functionally identical to those in the Affordable Care Act, and that if you believe one will have a dramatic impact on costs, so too should the other. How, specifically, do your exchanges differ from those in the Affordable Care Act?

There are two important differences: First, a Medicare exchange would only cover Medicare-eligible individuals. Those on Medicare have fundamentally different health needs than the American public at large. For one thing, many seniors are beyond working age and need a much wider government safety net than working Americans do. For another thing, seniors have unique health risks that make getting insurance more difficult for them than for younger Americans. They deserve the kind of health security that Medicare provides. Our Medicare plan, and ours alone, actually preserves that security by saving Medicare from a bankrupt future.

Second, while Medicare is limited to a segment of the population in need of greater health-care support, the President’s health care law imposes compulsory, federally approved insurance on the entire population. It raids Medicare to fund a new open-ended health entitlement for non-elderly Americans — the exact wrong approach to increasing access and lowering costs for this group. It raises taxes by $800 billion. And it forces 20 million additional Americans into a broken Medicaid system that is already failing the Americans it serves. Our budget moves health-care policy in the opposite direction — away from government-centered health care and toward patient-centered health care that promotes competition and consumer choice.

4) You’ve repeatedly compared your Medicare plan to the health-care benefits you receive as a member of Congress. But the system that gives you those benefits, the Federal Employee Health Benefits Program, has not held its cost growth to anywhere near the rate of inflation, or even below that of Medicare. So why will that same model achieve such dramatically different results in Medicare?

Medicare is the largest single payer in the American health-care system, so the structure of fee-for-service Medicare is a key driver of health-care costs throughout the system. As my friend and noted health policy expert Jim Capretta likes to say, Medicare is not the train getting pulled by the engine of rising health-care costs. Medicare is the engine driving costs ever-higher, because the way we reimburse providers under Medicare encourages fragmented and costly care. The House Budget Committee recently made a video explaining how this happens.

The point is this: The Federal Employee Health Benefits Program cannot claim immunity from the system-wide cost growth that is driven primarily by Medicare. However, if we reform Medicare so that it looks more like the system that members of Congress enjoy — in which federal employees choose from a list of competing plans and get the coverage that delivers the best value to them — then we can slow the growth of Medicare spending and thereby slow the engine that is driving up everyone’s health-care costs.

5) The Congressional Budget Office says that private insurance will be more expensive than traditional Medicare insurance of the same quality, and under that analysis, your plan saves money by shifting costs. What happens if they’re right? Would you support your plan if, in 10 years, the savings proved to be primarily achieved through shifting costs to seniors?

Our reforms do not shift costs, they bring down costs. As I explained in a recent interview:

“A couple of things on that analysis. Number one, it fails to take into consideration the extra $7,800 — we’re talking about adding to low income seniors’ benefits. What we’re saying is protect those who are low income by supplementing their benefits and covering their out of pocket costs. We’re also saying as people get sicker, increase their payments to stabilize their premiums and as people get wealthier don’t subsidize them as much. It is really inaccurate to suggest that’s going to happen to everyone.

“The other thing I would say is its comparing Medicare to a fiscal fantasy, which the current system is unsustainable and it is growing at rates that are unsustainable that will crash the system. The question is: what are the kinds of reforms we are putting in place to get at the root cause of health inflation, to make our health care dollar stretch farther, to inject competition into the system so we can stretch our dollar farther. And then subsidize people more who need it more and not those who need it less.

“It is really an incomplete comparison to suggest that’s happening to everybody. Yes, wealthier people are going to pay more in the future, but more importantly there is only so much money to go around – it is finite. What we believe we should do is save Medicare so it is something the next generation can count on and subsidize people who need it the most and not as much as people who need it the least.”

Furthermore, I would add that CBO is directed by Congress to make the false assumption that price controls work. Claims that Medicare’s fee-for-service model would be cheaper in 2022 are based on estimates that assume even tighter price controls — those put in place by the new health care law. But price controls don’t actually improve the efficiency of how health care is delivered; they just shift costs to others. This is real cost-shifting — it happens now, and drives costs up, not down. If price controls actually controlled costs, why not double down? We could always cut costs just by paying less. But we can’t, and the reason is that price controls have a very predictable effect: they reduce supply. And that means waiting lists and denied benefits — or, in a phrase we both know well, government rationing.

6) You say that states can cut Medicaid costs dramatically by taking more control over the program. But Medicaid is already much cheaper than private insurance or Medicare. What’s the evidence that significant further savings can be achieved save through lowering quality or reducing eligibility?

Medicaid is not “cheaper” — it simply reimburses doctors less for their services. Price controls are a particularly destructive attempt to save money, because they result in shortages. In the case of Medicaid, that means providers who stop accepting new Medicaid patients. As I’m sure you know, many providers won’t take any Medicaid patients at all, because reimbursement rates have fallen so low.

Furthermore, Medicaid relies heavily on price controls because they are one of the few tools available to states under the current system. Our budget gives states more tools, such as freedom from federal mandates, so they can actually design Medicaid programs that deliver tailored benefits to truly needy populations. Your question, if I understand it correctly, is, “How can states save more in Medicaid when they’ve already taken price controls as far as they can go?” Our answer is that we need to give states better tools to achieve savings. Price controls are blunt and ineffective — they don’t work. By contrast, many state governors have informed us that they can design better, more cost-effective Medicaid programs for their residents if they are given the freedom to do so.

7) You say government control never works in health care. But other developed countries pay much less than we do and don’t appear to suffer from worse outcomes. So what, specifically, is your evidence that the health-care system in the Netherlands, or in France, or in Germany, doesn’t work?

Canada’s health-care system consumed 40 percent of provincial budgets in 2010. The French health-care system has run deficits since 1989 and is currently facing a $15 billion shortfall. The British health-care system is cutting millions of scheduled operations because the government simply cannot afford to pay for them. What is similar about these stories, other than their alarming fiscal and economic implications, is that in each case the government decides which services will be cut — not patients. The government decides what drugs will be available — not patients.

Let’s be clear here — neither the U.S. nor Britain, nor Canada, nor France can sustain the type of health inflation that is crushing their budgets and pressuring their economies. The difference in approach is this: Should the government make the decision about what kind and how much health care we get, or is that a decision that individuals and families should make for themselves? That is the fundamental difference in approach between our two parties. The President’s health-care law puts that decision-making power into the hands of unelected bureaucrats. He believes a panel of smart technocrats can make better decisions for all of us than we can for ourselves. I, and I would argue most Americas, reject that premise.

8) Is it fair to reduce spending on Medicaid even as we cut taxes on the rich?

This question begins with a false premise. First, our budget does not cut taxes on the rich. It prevents the tax increases that the President wants to enact, which would raise the top marginal tax rate to 44.8 percent. It rejects calls to permanently increase the government’s share of revenue to historically high levels of Gross Domestic Product. And it proposes revenue-neutral tax reform, which promotes economic growth by lowering individual and corporate tax rates for everybody while eliminating tax credits and deductions that distort economic activity and go mostly to the well-off.

Second, we “reduce spending” in Medicaid only relative to an unsustainable baseline — real spending on Medicaid actually grows substantially under our budget. What changes is how that money is spent. Rather than stick with a flawed, open-ended matching formula that encourages states to structure their Medicaid programs so as to maximize federal dollars, our budget converts Medicaid into a block-grant program that frees states to structure their Medicaid programs so as to maximize aid to those who truly need it. We are following the path blazed by the successful bipartisan welfare reformers of the mid-1990s — whose reforms many predicted would hurt the poor, yet whose reforms actually contributed to a steady decline in poverty rates, including child poverty.

Our budget calls for tax reforms that grow the economy, and it proposes safety-net reforms that empower states to do a better job of helping the poor. Do I think these reforms are unfair? Of course not. I think these reforms are the best way to control spending, avoid a fiscal crisis, get the debt under control, and grow the economy while creating jobs and prosperity.

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