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The Rivlin-Ryan Plan to Reform Medicare

Reihan Salam | November 18, 2010

Two members of the Bowles-Simpson deficit commission, Rep. Paul Ryan and Clinton-era OMB director Alice Rivlin, have endorsed a sweeping plan to overhaul the Medicare system.

Many critics have taken Bowles-Simpson to task for “hand-waving” at Medicare cost growth by declaring an intention to cap Medicare to a growth rate of GDP growth + 1% while retaining its defined benefit structure. Given that Medicare has grown at a far faster rate in recent years, the idea is that this is a highly unrealistic projection. And if the only method we use to contain cost growth is IPAB-driven tweaks to the payment system and careful monitoring, one can’t help but agree.

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The Rivlin-Ryan plan is closely modeled on the Medicare reform proposal in the Ryan Roadmap. The CBO offered a preliminary evaluation [PDF] of the proposal in January:

Both the level of expected federal spending on Medicare and the uncertainty surrounding that spending would decline, but enrollees’ spending for health care and the uncertainty surrounding that spending would increase. Under the Roadmap, the value of the voucher would be less than expected Medicare spending per enrollee in 2021, when the voucher program would begin. In addition, Medicare’s current payment rates for providers are lower than those paid by commercial insurers, and the program’s administrative costs are lower than those for individually purchased insurance. Beneficiaries would therefore face higher premiums in the private market for a package of benefits similar to that currently provided by Medicare. Moreover, the value of the voucher would grow significantly more slowly than CBO expects that Medicare spending per enrollee would grow under current law. Beneficiaries would therefore be likely to purchase less comprehensive health plans or plans more heavily managed than traditional Medicare, resulting in some combination of less use ofhealth care services and less use of technologically advanced treatments than undercurrent law. Beneficiaries would also bear the financial risk for the cost of buying insurance policies or the cost of obtaining health care services beyond what would becovered by their insurance. [Emphasis added.]

The CBO has offered a brief preliminary evaluation [PDF] of the Rivlin-Ryan plan itself, which includes a number of other provisions relating to Medicaid and the CLASS program.

It is the CBO’s job to be cautious in its analysis. One important thing to keep in mind is that the CBO uses an extended baseline and an alternative fiscal scenario to evaluate any new proposals, and these models of the shape of the economy depend on many assumptions that merit careful scrutiny. Earlier this month, I described the CBO’s operating assumptions about unemployment and how they impact cost projections for PPACA.

For the rest of the post, visit National Review Online's "The Agenda" blog.


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