Medicare

Medicare Under Paul Ryan's Budget Plan

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Rep. Paul Ryan, the Republican Chairman of the House Budget Committee, released his latest budget proposal today. In many ways, the plan resembles the budget proposals Ryan has been putting forth for years. One major differnence, however, is that he's updated his Medicare plan to resemble the joint plan he recently put forth with Democratic Sen. Ron Wyden. Ryan's old plans called for converting Medicare into a premium-support system driven exclusively by private competition. The change would be gradual: the current system would be preserved for seniors currently in the system and anyone less than a decade out of Medicare. 

Ryan's new budget would also retain a "traditional" government-run Medicare option that seniors could buy into with their premium support payments. I have some serious concerns about this option. But it does offer a likely budgetary future that is significantly better than the current status quo. Here's what the Congressional Budget Office has to say about Medicare under the Ryan plan:

Under the specified paths, by 2030, 39 percent of Medicare beneficiaries would be subject to the spending constraints established for the program (that is, they will have entered the program in 2023 or later); that share would rise to 91 percent by 2050. Net federal spending on Medicare—including offsetting receipts, which are mostly payments of premiums—would be 4¼ percent of GDP in 2030 and 4¾ percent in 2050, CBO calculates. In contrast, by 2050, net Medicare spending would grow to 6½ percent of GDP under the baseline scenario and to 7¼ percent of GDP under the alternative fiscal scenario.

Two things stand out about this passage. The first is how gradual the transition from today's single-payer Medicare system to a fully premium support driven system would be: In 18 years, more than 60 percent of the Medicare population would still be enrolled in the current system. Nearly four decades from now, large remnants of today's system would still exist, with nearly 10 percent of Medicare enrollees still enrolled. And even that doesn't capture the glacial slowness of the change. Under Ryan's updated plan, many seniors would still be enrolled in a premium-supported version of government-run Medicare. It is hard to describe this as a radical change to the system. 

And yet as gradual as the transformation would be, the budgetary effects would be significant—4.75 percent of the economy in 2050 compared with 7.25 percent under the CBO's more realistic alternative budgetary scenario. 

There is a case to be made for making more rapid changes to Medicare: GOP Sens. Rand Paul, Jim DeMint, and Mike Lee recently released an imperfect plan to shift Medicare beneficiaries into a version of the Federal Employee Health Benefits Plan that relies on transitioning to a system made up exclusively of private insurance plans almost immediately. As a result, that plan could produce significant budget savings much more quickly. But even Ryan's plan to gradually transform the system would, in the long run, produce substantial savings.