Responding to Ryan

May 27, 2011

Let me begin by saying that though I’m eager to do an interview where we can really engage with one another’s arguments, I appreciate Paul Ryan response to my questions and hope we can continue the dialogue. In this post, I’m going to focus on his two most important arguments: the one for why his plan will work, and the one for why other plans failed. The first argument can be summed up as “look at Medicare Part D,” the second as “look at the rest of the world.”

”Our premium-support plan is modeled after the Medicare Part D prescription-drug program,” Ryan writes, “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.”

”Medicare Part D” is wonk-talk for the Medicare Prescription Drug Benefit. Signed into law in 2003, Medicare Part D has been cheaper than originally estimated. But it hasn’t been cheap enough to make Ryan’s plan work, and nor is Ryan’s plan as closely related to Part D as he suggests.

Let’s start with the costs. Since 2006 — the first year of the benefit — Medicare Part D’s average premium has risen by 57 percent (pdf). Between 2010 and 2011, premiums rose by 10 percent. And going forward, the program’s actuaries expect (pdf) expenditures “to grow at an average annual rate of 9.7 percent for the 10-year period 2011 to 2020.” That may be an excellent performance when compared with the Congressional Budget Office’s initial projections. But it’s a lot faster than inflation, which is what Ryan needs for his plan to work.

Moreover, Part D’s performance vis-a-vis the early projections has had less to do with the program itself and more to do with sectorwide trends in the pharmaceuticals market, where older drugs are slipping out of patent and the development of new drugs has slowed. As the actuaries write, “The reduced estimates reflect a higher market penetration of generic drugs and a decline in the number of new drug products that are expected to reach the market during this period.” That’s why the drug savings haven’t been limited to Medicare: National drug spending is 35 percent lower (pdf) than projected in 2006. Medicare Part D is part of, rather than the driver of, that trend. And that trend, of course, is a bad one: it’s lower costs through less innovation, which isn’t want Ryan wants and isn’t what I want.

Another reason that the program’s costs came in lower than expected is that fewer people signed up. The Congressional Budget Office estimated that 93 percent of Medicare enrollees would participate. Instead, 77 percent did. That meant costs were lower than projected, but not because the program was more effective than we thought it would be.

Finally, if you look at them closely, Ryan’s plan and Part D don’t look all that similar. For one thing, Part D only covers drugs, while Ryan’s plan covers all health-care services. It’s not at all clear how applicable the Part D experience is to, say, hospital insurance. But the bigger issue is that Ryan’s plan is capped while Medicare Part D isn’t. In Part D, the federal government pays, on average, 74 percent of program’s costs. And that support grows alongside the program’s costs. Ryan’s plan covers about a third of beneficiary costs, and that support grows at the rate of inflation — so much more slowly than the rest of the program, or than Medicare Part D. This has always been the main criticism of Ryan’s plan, and Medicare Part D’s structure shows what a radical decision he made to structure it like that.

Which brings us to the rest of the world. I asked Ryan how he could say that government control never works in health care when Germany, the Netherlands, France and other countries pay so much less, and get as much or more, than we do. Ryan’s reply:

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?

This is basically a dodge. First, he changed the countries: He moved to Canada and the United Kingdom rather than the examples I mentioned. And Canada and the United Kingdom, though more successful than we are, are not particularly successful health-care systems. But even so, Ryan’s wrong to draw an equivalence between our costs and theirs. In 2008, Canada spent about $4,000 per person, per year, on health care. The United Kingdom spent a bit more than $3,000. We spent about $7,400. They want to get their health-care costs down and we want to get our health-care costs down, but suggesting that we’re all facing the same sort of pressure is flatly wrong. The same goes for cost growth, where we are again outpacing the rest of the world:


This is the difference between someone who wants to lose 20 pounds and someone who is morbidly obese. Neither party is happy with their weight, but only one of them is in a position to contemplate gastric-band surgery.

And saying this is all about “who should make the decision” is too simple by half, or perhaps by three-fourths. Under Ryan’s plan, the relevant decisions are made by whether you have the money to pay for what you need, whether your insurance provider says “yes” or “no,” and whether Congress decides to increase or decrease the size of the subsidies. As he says elsewhere in his response, his plan is all about making Medicare less generous, about finishing off the open-ended, fee-for-service model he believes is driving costs.

Similarly, there are a mix of people making decisions in, say, the French system. You can purchase whatever you want if you have the money. If you don’t, you’re somewhat at the mercy of private insurers because there’s a lot of supplementary private insurance. The government plays a big role financing basic care and bargaining down prices. And, as we’ve seen, the result is a system that the French people quite like, that holds costs down much better than ours does, and that gets similar or better outcomes.

In both of his major arguments, Ryan focuses on the wrong numbers. When defending Medicare Part D, he argues that it came in cheaper than expected, ignoring both the reasons behind that performance and the fact that growth in the program was nevertheless much faster than his plan could bear. When attacking the systems in other countries, he cherrypicks numbers to demonstrate they want to save money in the health-care systems but ignores the numbers showing that they spend half as much as we do. The result is that he gives people the wrong impression of both Medicare Part D and health systems across the world.

The reality is that if Ryan’s plan held growth to the same rate as Medicare Part D, it would implode, while if it closed 50 percent of the gap between our system and the Canadian system, it’d be a wild, unmitigated, unbelievable success. But unhelpfully for Ryan, that points to the fact that the approach he’s trying has never controlled costs as dramatically as he suggests, while the approach he’s eschewing has working in a dozen other countries. As he says in his introductory remarks, we both agree that controlling health-care costs is an urgent priority, that maintaining and improving quality a necessary task, and that none of this will be easy. But that just underscores how important it is for us to be realistic about what we can do, clear-eyed about what has and hasn’t worked elsewhere, and open to ideas that don’t fit with our philosophical preferences.

Finally, as he said, we’re not going to resolve this is one conversation. So if Congressman Ryan would like a chance to respond to any of this, either in an interview or writing, I’d be happy to publish it.

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