Editor’s note: A version of this article first appeared at Forbes.com.
A year ago, opponents attacked Rep. Paul Ryan (R-Wis.), claiming that his plan to reform Medicare would kill grandma by taking away her benefits. Mitt Romney, who, of course, has chosen Ryan as his running mate, is proposing similar changes to Medicare. Does Ryan want to gut Medicare? To the contrary, Ryan’s intention is to save Medicare. The problem, however, is that Ryan’s proposal, although a step in the right direction, does not go far enough. More drastic measures need to be taken to save Medicare so that it provides a reasonable level of benefits for future generations of retirees.
Medicare will soon be the biggest contributor to an unsustainable level of federal government debt. Even progressive economists, such as Alan Blinder, who generally support an increased role for government in the economy, realize that Medicare spending is on an unsustainable path.
Congressman Ryan has raised hard questions about the future of Medicare. Medicare spending was 3.2 percent of gross domestic product in 2008 and the Congressional Budget Office projects it will rise to 9.5 percent by 2050. According to Michael Cannon and Chris Edwards of the Cato Institute, if Congress does not reform Medicare and other entitlement programs and continues to spend the same share on other federal government programs, federal spending will double from 21 percent of GDP in 2008 to 42 percent in 2050.
Although part of the reason for rising Medicare spending is the growing number of retirees, spending per person has been rising much faster than inflation. Because Medicare recipients are spending other peoples’ money, they have little incentive to limit their spending. Waste and fraud are serious problems as unscrupulous individuals try to get a share of the enormous amount of money being spent. Much Medicare spending is for treatments that are not cost effective, yielding too small a reduction in mortality or suffering to justify the amount being spent.
The Obama administration’s plan and Romney’s proposal, which is very similar to the proposal introduced by Congressman Ryan and Senator Ron Wyden (D-Ore.) in 2011, both recognize the need for holding down Medicare costs, but each takes a different approach. President Obama’s plan maintains traditional Medicare while seeking to use the power of the federal government to control prices and implement a variety of cost-control provisions aided by various positive and negative inducements. The Republican plan shifts costs from the government to beneficiaries, replacing traditional Medicare with vouchers whose value will grow more slowly than medical costs have been growing.
The president’s plan would take advantage of cost-effectiveness research and proposes ending coverage for expensive procedures that offer few health improvements. The problem is that this one-size-fits-all approach does not adequately account for the diverse needs and situations of patients. Instead of the federal government deciding what to cover and not cover, a plan involving vouchers and private insurance would allow individuals the freedom to choose the kind of coverage they want.
In the plan he announced in 2011, Paul Ryan proposed changes to Medicare that would not take effect for 10 years and would reduce benefits only for those who are now younger than 55. By putting off real cuts until 2023, the Ryan plan would still add trillions to the national debt over 10 years. For the sake of future retirees, more radical changes need to be made and the sooner the better.
Although Ryan’s proposal would not do enough to make Medicare sustainable, his candidacy may make Medicare and fiscal responsibility (generally) central issues in the 2012 presidential campaign, which is a good thing. The time has come for responsible debate about Medicare, Medicaid, and other entitlement programs. We cannot continue to ignore the looming fiscal nightmare any longer.