|Paul Ryan’s Defining Contribution to Medicare Reform|
By Ashton Ellis
Friday, March 23 2012
One of the biggest wins for conservatives in Paul Ryan's newest Path to Prosperity budget proposal is the eventual conversion of Medicare into a defined contribution plan, thus saving taxpayers trillions of dollars in unfunded promises.
For decades, many employees enjoyed defined benefit plans from employers willing to guarantee a specific type of service on a far-off date. Those promises enticed employees to stay with a company and forego larger salary raises for the sake of a later payoff.
But when the number and types of benefits proliferated, employers could not afford to guarantee an endless increase in expensive benefits. The private sector solution was to switch from defined benefit to defined contribution plans. This moved the company's guarantee from the future to the present, bringing certainty, solvency and sanity to many pension plans.
The two groups that still cling to defined benefit plans are labor unions and government budget writers.
When Medicare was passed as part of the Social Security Amendments of 1965, defined benefit plans were in wide usage so it is little wonder that both federal programs adopted the scheme.
Medicare promises coverage for the elderly, where the federal government guarantees payment for services. But since a limited money supply can't pay for endless benefits, doctors often receive less than the true value of their services.
Building on last year's version, Paul Ryan's latest budget proposal would bring Medicare into the 21st century by eventually converting the program into a defined contribution plan for workers 54 and younger. For those 55 and older, traditional Medicare's fee-for-service model is retained.
Under Ryan's original budget reform last year, Medicare spending would eventually become a premium support voucher where the government would pay an upfront cost in the form of a voucher to every eligible senior.
In the latest version of Ryan's budget proposal, he includes traditional Medicare as an option for seniors to choose, even after the premium support voucher goes into effect ten years from now. This means that Medicare would continue to exist, but on a competitive basis that attracts seniors instead of defaulting them into it.
The key cost saving device in Ryan's newest budget is the creation of a competitive bidding process among private insurers to decide the level of premium support, instead of an arbitrary formula set by bureaucrats.
The process would work like this. Each year a baseline of coverage would be required, similar to what Medicare currently provides. Private insurers would submit bids to offer that level of coverage (or more) at the lowest price they could. The second lowest bid would become the value of that year's premium support voucher. A qualifying senior could then use her voucher to buy a plan that costs less than, equal to or more than the voucher is worth. If less, she keeps the difference; if more, she pays it.
In any event, Ryan's budget creates at least two options that would not increase the cost of a senior's health insurance, now or in the future. It keeps Medicare's promise to help seniors afford health care. Best of all, the plan uses competition to deliver high quality at lower prices.
All of this means that the liberal charges that Ryan's budgets would "end Medicare as we know it" are patently false.
Despite liberal claims that Ryan's reforms are an electoral death sentence for the GOP, intelligent people know better.
A recent Congressional Budget Office report estimates that over the next decade the retiring Baby Boom generation will increase Medicare's enrollment rate by a third and spending on the program by 50 percent. The projected costs of Medicare and Medicaid stretch into the trillions of dollars. None of this is fiscally sustainable.
So far, there are two competing proposals to rein in federal health care spending. One empowers citizens, the other, central planners.
ObamaCare uses an Independent Payment Advisory Board (IPAB) to control costs by rationing health care. ObamaCare promises benefits, but IPAB eliminates them through bureaucratic denials.
Paul Ryan's defining contribution to reforming Medicare is articulating a clear idea of what Medicare will provide today and tomorrow so that each individual will know how to plan for the future.
It's an idea worth defending; now and in the general election.
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