Today, Ezra Klein made the logical and concise case for why Paul Ryan’s Medicare privatization plan wasn’t about health care cost control but just saving the government money by shifting more of the health care cost burden onto regular people.
Ryan’s plan works differently. Let’s say health-care costs grow at 8 percent a year — a fairly common rate. And let’s say inflation sticks near the Federal Reserve’s target of 2 percent a year. Ryan gives seniors a voucher that starts at $15,000 — for our purposes, assume that’s the exact cost of a health-care plan this year — which grows at the rate of inflation. Let’s say these vouchers prove more successful than any previous experiment with constructing insurance markets and, with no other policies, bring the growth in health-care costs down to 6 percent. In 20 years, that plan costs $48,107. But Ryan’s voucher is only worth $22,289.
Ryan’s plan has cut the growth in health-care costs a bit. But the real way it’s saved money isn’t through competition. It’s by pushing the difference between the size of the vouchers and the real cost of health-care insurance off of the federal books and onto beneficiary budgets. That’s not the market at work, and it’s not cost control. It’s cost shifting. Putting aside that it’s not sustainable, it’s also not particularly helpful. Saving the federal government from bankruptcy by bankrupting millions and millions of families does not solve our fiscal problems.
My only problem with this excellent argument is that I wish Klein and many others on the left had bothered to apply this reasoned analytical thinking to the Affordable Care Act.
After all, “Obamacare” uses a near identical cost-shifting accounting trick to produce most of the CBO’s projected long term savings. It caps the employer providde health insurance deduction and also has the cap increase at the same, far-too-low, rate of inflation (PDF). Given that the bill uses a very poorly designed large excise tax to do this, it assures employers won’t offer insurance worth more than the cap.
Eventually, it will cause the same cost-shifting problem Ryan’s vouchers would for seniors. Because of the very low indexing, American tax exempt health insurance will get much worse with higher co-pays, less benefits and larger deductibles.
This doesn’t really save the government money by controlling cost–it mostly increases tax revenue for the government by forcing people to pay for more of their care out of pocket from their taxable income.
If critics want to rightly point out that, because of low indexing, the projected savings from Ryan’s plan are “unsustainable” and come mostly from cost-shifting the burden onto regular people, then they need to admit Obama’s long-term savings uses the same low indexing that is also not credible and shifts cost unto regular people.