Rep. Chris Van Hollen: ‘The Romney-Ryan Medicare plan would have immediate cost increases for seniors’

August 18, 2012

Admittedly, this isn't a very flattering picture of Paul Ryan. But it's the only one I could easily find of him and Chris Van Hollen. {Photo credit: Melina Mara / The Washington Post)

Maryland's Chris Van Hollen is the top Democrat on the House Budget Committee. That makes him Paul Ryan's counterpart in the House. And so Van Hollen, more so perhaps than any other House Democrat, has experience with both Ryan and his budget. We spoke on Friday about his working relationship the vice presidential candidate, the disagreements Democrats and Republicans have over Medicare, and why Democrats can't seem to come together around one budget. A lightly edited transcript of our conversation follows.

Ezra Klein: You’re the ranking member on the House Budget Committee. Paul Ryan is the Chairman of the Committee. How do you get along?

Chris Van Hollen: I get along very well with Paul Ryan personally. We have very deep differences on policy issues. But we express them civilly. We got together early on and went out to dinner, talked through some issues, and resolved to debate the policy issues fiercely but civilly. I think anyone who has observed the debates we’ve had in the Budget Committee would say we have.

EK: Let’s talk about those issues then. You and Ryan have spent a lot of time arguing about Medicare. Walk me through the debate.

CVH: The fundamental difference between the approach President Obama and the Democrats have taken and the approach Republicans have taken is this: The president, in Obamacare, worked to reduce health-care costs in the system overall, including in the Medicare system, by, for example, eliminating the huge overpayments going to private insurance in Medicare Advantage and by realigning the payment incentives to reward quality of care over quantity of care.

The Republican approach has been to shift rising health care costs onto the backs of seniors. Seniors would get a voucher that declines over time relative to rising health care costs. Seniors get stuck with the bill. And so the president’s approach did not cut any benefits to Medicare beneficiaries. In fact, it strengthened the benefit to individuals with high drug costs, strengthened the preventative benefit under Medicare. In the Ryan budget, they adopted those savings but did not recycle a penny of the savings into benefits.

We may also want to talk about this recent Romney-Ryan issue over the savings?

EK: You’re the Congressman! If you want to talk about it, let's talk about it.

CVH: One sensible part of the Ryan budget was it incorporated the savings achieved in the Affordable Care Act. That extends the solvency of the Medicare trust fund by eight years. If you decide to eliminate those Medicare savings, as Romney has proposed to do, you accelerate the insolvency of the Medicare trust fund by eight years. In fact, under that proposal, the Medicare trust fund would be insolvent by the end of the Romney-Ryan administration should they be elected.

It’s got another bad consequence, too. It will begin to immediately increase costs to seniors, and here’s why: When we eliminated the overpayments to the private insurance companies and changed the incentives to reduce costs overall, we allowed each Medicare dollar to go further. Now Romney says he wants to restore those overpayments to private insurance companies in Medicare Advantage. That increases the costs of Medicare, and Medicare beneficiaries pay a share of the overall program. So what Mitt Romney is proposing is to reinstate huge overpayments to private insurance companies in Medicare by increasing premiums and co-pays on seniors.

EK: Wait, explain that to me for a second. You mean because he repeals other benefits in the Affordable Care Act? Or because he raises costs in Medicare by repealing the cuts?

CVH: If you eliminate those savings from Obamacare and the Ryan budget, you’ll increase the overall costs of the Medicare program because you’re once again paying private insurance companies 114 percent what you pay Medicare. And because the premiums and co-pays for seniors are based on a share of the cost of the overall Medicare program, you drive their costs up by $300 a year on average over 10 years.

EK: Until now, I think that insofar as folks knew anything about the Medicare debate, they probably thought that Republicans had a plan to cut Medicare spending, but it was a bit cruel, and Democrats were completely unwilling to touch Medicare spending at all. I think we’re starting to get closer to the truth here, which is that both parties have very different visions for how to cut Medicare spending. But one thing the Democrats like to say is that they’re just cutting providers, not beneficiaries. But providers often pass their costs along to beneficiaries, either by making them pay more or giving them worse service. So how real is that distinction?

CVH: Obviously, if you were just to do across-the-board, arbitrary cuts, that would be the case, but the whole idea behind Obamacare is to change the incentive structure behind Medicare so the payments to providers focus on the value of care rather than the volume of care.

So, for example, before the Affordable Care Act was passed, hospitals would get reimbursed every time a patient was readmitted to a hospital even if they were readmitted continuously for the same underlying condition. Hospitals had no financial incentive to coordinate the care of the condition once the beneficiary left the hospital. We’re now changing the model so hospitals don’t get reimbursed every time the patient gets readmitted. Now they’ll get readmitted for managing that underlying condition. There’s also a major initiative underway to better coordinate care for dual-eligibles, people both on Medicare and Medicaid, who are a small portion of the population but a very high percentage of the costs. There are lots of misaligned incentives between the Medicare and the Medicaid program, and we’re working on them.

EK: So if Paul Ryan was sitting here, I think he’d say something like this: You’re arguing that a bunch of congressmen, by changing words in a statute, can put in place the right incentives and programs and procedures for Medicare to figure out what quality is and how to get it at a lower cost. Why in the world would you think that would work better to deliver lower costs and higher quality than putting private insurers into the program, giving seniors a financial reason to choose the cheapest plans, and letting the market do your work for you?

CVH: Well, first of all, we’ve had an experiment with the private insurance plans within Medicare. Those were the Medicare Advantage plans. The original idea with those plans was that they’d save money for the very reasons you’re talking about. In fact, they’ve ended up costing more money.

Second, if you fragment the Medicare market, you lose the ability of the Medicare program to negotiate good prices for seniors. After all, we all know that a large HMO or insurance company has more bargaining leverage over price than smaller ones. I would point you to the analysis done by the Congressional Budget Office of the Republicans’ fiscal year 2012 budget that indicated the Ryan-Republican approach did not reduce costs in the overall system. They estimated under that plan that by the year 2022, seniors would be paying an additional $6,000 plus per year. That model has clearly failed.

But it’s also clear we need to move away from the strict fee-for-service program and towards a model that rewards quality of care. And as you know, there’s some preliminary evidence we’re bending that curve down. Per-beneficiary costs are slowing. It’s too early to pop champagne bottles, but clearly that’s the direction we need to move in.

EK: Another point Ryan makes is that his plan will make the Medicare system more like the health insurance that members of Congress get. You’re a member of Congress. You seem pretty healthy. So why isn’t that a good idea?

CVH: That plan gives seniors on Medicare a much worse deal than members of Congress have. The Federal Employee Health Benefit Plan, like the current Medicare plan, covers a fixed percentage of the overall costs of your health care. In the federal plan, it’s called the guaranteed share, and it’s 72 percent of the cost of your premiums, and as costs rise, they continue to pay that guaranteed share.

The entire premise of the Romney-Ryan plan is to have the voucher value fall relative to rising health-care costs, and so the percentage of health-care costs covered by Medicare will decline over time under the Romney-Ryan plan. That exposes seniors to rising health-care costs when members of Congress are protected from them. We’ve even got a graph on this that I can send you.

EK: If you send me a graph, I’ll put it up alongside this interview.


They sent me the graph.

EK: To push on that, though, it’s very nice that you as a member of Congress get this unlimited match on your health spending. And it’s great for current Medicare beneficiaries that they get that, too. But it removes the incentive to be cost conscious and it’s created a benefit we can’t afford. So the argument some economists make is that it can’t keep being an open-ended benefit, and so it’s better to cap it at some reasonable level and put pressure on the system to cut costs so we can use that money on other things.

CVH: Well, I would say that the better way to deal with that is to reduce the incentives for providers to push overutilization in the system, and that’s the whole thrust of rewarding providers for coordinating the care. Now, as you know, there are co-pays for all sorts of services in Medicare now, so seniors do have skin in the game. But we believe the thrust of the effort to reduce costs should be focused on modernizing the way we reimburse providers for the care they provide.

EK: Medicare tends to take up most of the oxygen in this conversation. But Ryan’s cuts to Medicaid and to other programs for the poor are, on the whole, much more severe than his cuts to Medicare. For one thing, they start now, rather than 10 years from now. And for another, they’re just larger. The cut to Medicaid is about a third of the program’s projected spending.

CVH: I do believe it’s been missed. But I do want to emphasize that the Romney-Ryan Medicare plan would have immediate cost increases for seniors. I know they like to talk about the fact that their plan doesn’t really begin till 10 years from now, but for seniors with high prescription drug costs, the Ryan-Romney plan would increase their costs immediately. And if you decide not to take the savings in Obamacare, you pass that onto seniors in the form of higher co-pays. So it’s not true their plan doesn’t have an impact for 10 years.

That said, I certainly agree that the Romney-Ryan budget has a dramatic, negative effect on Medicaid. According to the Congressional Budget Office it will cut Medicaid by one-third over 10 years. That’s a huge hit, and a lot of people don’t realize that two-thirds of Medicaid spending goes to support seniors in nursing homes and individuals with disabilities. That would dramatically hurt seniors who rely on Medicaid and low-income families and kids.

EK: That’s an interesting point, and one I haven’t thought about before. A key argument of both Romney and Ryan is their cuts won’t affect you if you’re over 55. But if you’re a senior on Medicaid, and a lot of the sickest seniors are on Medicaid, they would.

CVH: That’s right. While seniors represent a smaller part of the Medicaid program, they represent most of the costs. And again, you’ve got two-thirds of the costs in Medicaid going to seniors in nursing.

EK: One of the main criticisms levied at Democrats in this conversation is that, while there might be problems with the Republican budget, at least there is a Republican budget. By contrast, the House Democrats have one budget, the White House has another, and the Senate Democrats haven’t released a budget in years. In addition, when Obama’s budget comes to the floor, it often gets voted down by Democrats. So why is there such incoherence from Democrats as to the budget they favor?

CVH: Well, the Democrats do have a budget. The president has submitted a deficit-reduction plan to the Congress. He submitted one last September and in his most recent budget. The plans provide a steady and credible reduction in the deficit. At the end of 10 years, deficits are under three percent of GDP.

The House Democrats also prepared a budget, and the White House said that the House Democrats' budget is a lot closer to their than the caricature the Republican put up the House and called Obama’s budget. That’s something people miss: The Republicans put something called Obama’s budget on the floor, but it wasn’t Obama’s budget. The White House released a statement saying our budget was much closer to their budget. And the House budget got very strong support among Democrats.

I would also point out that since last fall, we’ve been operating under the Budget Control Act, which is not just a congressional budget resolution, but was signed by the president and has the force of law. That contains over a trillion dollars of cuts over 10 years through spending caps and really took the place of a budget resolution over the next 10 months.

EK: The key unknown in both Ryan and Romney’s plans is whether they’ll offset their tax cuts. If they do, their numbers can work, as long as they can make their spending cuts. But if they don’t, then even with their spending cuts, their plans hugely increase the deficit. But so far, I know that Ryan has simply told the Congressional Budget Office that his tax plan will be revenue neutral, even though he’s not said how he’ll get it there. You guys have tangled over this issue, so how much confidence do you have that we’re entering a new era in which Republicans will pay for their tax cuts?

CVH: They refuse to disclose how they would make the math work, which is why it’s important to look at the analyses that have been done by independent groups like the Tax Policy Center, which looked at the Romney tax plan and said, if you’re serious about doing this in a budget-neutral way, it will mean middle-income taxpayers pay more. The Ryan plan is, of course, even more aggressive than the Romney plan that the Tax Policy Center analyzed.

I should also point out that during the budget negotiations in the Budget Committee, Democrats introduced an amendment that said during the process of tax reform, we will not increase the burden on taxpayers under $250,000 to finance tax breaks for folks at the top, and all the Republicans voted against that amendment.

Related: My interview with Paul Ryan on his health-care plan.

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