Why Rep. Paul Ryan’s budget plan is so flawed

April 11, 2011

Just over a year ago, I wrote a column praising Rep. Paul Ryan’s Roadmap. I called its ambition “welcome, and all too rare.” I said its dismissal of the status quo was “a point in its favor.” When the inevitable backlash came, I defended Ryan against accusations that he was a fraud, and that technical mistakes in his tax projections should be taken as evidence of dishonesty. I also, for the record, like Ryan personally, and appreciate his policy-oriented approach to politics.

So I believe I have some credibility when I say that the budget Ryan released last week is not courageous or serious or significant. It’s a joke, and a bad one.

For one thing, Ryan’s savings all come from cuts, and at least two-thirds of them come from programs serving the poor. The wealthy, meanwhile, would see their taxes lowered, and the Defense Department would escape unscathed. It is not courageous to attack the weak while supporting your party’s most inane and damaging fiscal orthodoxies. But the problem isn’t just that Ryan’s budget is morally questionable. It also wouldn’t work.

Don’t take it from me. Take it from Robert Reischauer, who directed the Congressional Budget Office from 1989 to 1995 and now leads the Urban Institute. “If this is a competition between Ryan and the Affordable Care Act on realistic approaches to curbing the growth of spending,” Reischauer says, “the Affordable Care Act gets five points and Ryan gets zero.” But Ryan would repeal the Affordable Care Act and replace it with his own wishful plan. In doing so, he makes it harder, not easier, for us to balance the budget.

To understand why Reischauer gives Ryan a zero, you need to understand the technical trick that gives Ryan his savings. His proposal says the federal government’s contributions to Medicare and Medicaid can’t grow at more than the rate of inflation. Then he told CBO to score his plan based on that assumption. That’s where his money comes from. But it’s nonsense.

Health-care costs don’t grow at the rate of inflation. Ever. Previously, Ryan acknowledged that. His Roadmap capped federal contributions between inflation and the actual cost of medical care. He then developed a more bipartisan version of the idea with Alice Rivlin, who founded the Congressional Budget Office and directed the Office of Management and Budget under Bill Clinton. That one was capped at the growth of GDP plus 1 percentage point. Both targets were far more plausible than the fantasy target Ryan is now using.

So why the switch? He has not said. I suspect he couldn’t make the numbers add up without tax increases. The problem now, however, is that his numbers don’t add up at all. Rivlin — a budget hawk’s budget hawk — has abandoned the proposal that Ryan says she helped write. “The growth rate is much, much too low,” she says.

Rivlin’s worry is that Ryan’s plan won’t control costs so much as shift them to seniors. And the CBO agrees with her. It concluded that Ryan’s privatization plan would actually add to Medicare’s costs. In 2030, traditional Medicare insurance, CBO estimates, would only cost 60 percent as much as the private options Ryan is offering. But under Ryan’s plan, seniors would pay two-thirds of the cost, while under traditional Medicare, they’d pay only 25 percent.

That’s not cost control. That’s cost-shifting. And even assuming Congress would turn a deaf ear to the cries of seniors, it wouldn’t solve our nation’s fiscal problems. It would just shunt them off the federal budget and onto family budgets, and make them worse.

It’s been fashionable for commentators to admit to Ryan’s failings and wonder why Democrats haven’t proposed anything of their own. The chorus has grown loud enough that Obama is scheduled to give a speech Wednesday outlining his alternative. But unlike Ryan, Democrats not only have a plausible proposal for controlling health-care costs, they have a law.

The Affordable Care Act, as Reischauer says, isn’t perfect. You can argue whether its cost controls are a five or a six, but not that they’re a 10. Nevertheless, it’s built atop a theory that actually makes sense, because it focuses on making medical care cheaper rather than changing who pays for insurance.

The law has three big ideas for controlling costs: First, pay doctors for quality rather than volume; second, vastly increase the amount of information available about which treatments work best and when; and third, pay providers more to keep people out of the hospital than to treat them once they get in it. If any or all of these strategies work, costs will go down, but not because the premiums seniors pay have gone up.

And the law takes the next step by including some big ideas for how to spread cost controls through the health system: a board of experts empowered to reform Medicare even when Congress is paralyzed or worrying about other things; exchanges where people can easily compare insurers based on cost and quality (the same model Ryan uses in Medicare, incidentally); electronic medical records that give doctors easy access to the latest information about drugs and treatments.

One refrain we’ve heard about Ryan’s budget is that it may be flawed, but at least it’s a starting point. Maybe so, but it’s the wrong one. Taking Ryan’s zero and making it into a five would be a lot harder than taking the Affordable Care Act’s five and making it into a seven — and the Affordable Care Act has the advantage of already being law, not just a glimmer in a congressman’s eye.

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