Paul Ryan's Modest Medicare Debate

Paul Ryan's Modest Medicare Debate
August 30, 2012

Benjamin Domenech

Benjamin Domenech (bdomenech@heartland.org) is a senior fellow at The Heartland Institute. Domenech... (read full bio)

Thanks to Paul Ryan’s Medicare reform proposals, the 2012 election cycle may focus more on health care and entitlement policy than any presidential election in American history. The irony is that for all the back and forth, both parties’ tickets essentially accept the same premise regarding Medicare.

Both Ryan’s and President Obama maintain that Medicare needs to be saved. Both agree that reforms should insulate current or soon-to-be retirees. Both use the language of entitlement to justify Medicare, describing it as a promise due to seniors who’ve paid into the system. And both aim for growth of the program should be at a rate of GDP +0.5 percent.

As Peter Suderman notes today:

Even though the party's latest platform acknowledges that Medicare is the largest single driver of the debt, and even as the party has inched toward making reform of the seniors health program a priority, it has also declared its intention to protect and defend the program at all costs. The GOP would have us believe that Medicare is both the biggest problem and the biggest success in American government, wrecking our public finances but also in need of saving from the current administration's cuts. 

On the campaign trail, Mitt Romney has declared that it was wrong for Obama to cut Medicare, and promised never to cut the program himself. Now Rep. Paul Ryan, the chief GOP proponent of Medicare reform in Congress and Romney's running mate, has thoroughly bought into this argument. Ryan's GOP convention speech tonight went all in on the defense of Medicare. "Medicare is a promise, and we will honor it," he said. And the reason to repeal ObamaCare is because of the way it upends the existing entitlement structure. "The greatest threat to Medicare," according to Rep. Ryan," is ObamaCare, and we’re going to stop it." 

Ryan went even further than that in an extended defense of Medicare in his remarks to the Republican convention:

And the biggest, coldest power play of all in Obamacare came at the expense of the elderly.

You see, even with all the hidden taxes to pay for the health care takeover, even with new taxes on nearly a million small businesses, the planners in Washington still didn’t have enough money. They needed more. They needed hundreds of billions more. So, they just took it all away from Medicare. Seven hundred and sixteen billion dollars, funneled out of Medicare by President Obama. An obligation we have to our parents and grandparents is being sacrificed, all to pay for a new entitlement we didn’t even ask for. The greatest threat to Medicare is Obamacare, and we’re going to stop it.

In Congress, when they take out the heavy books and wall charts about Medicare, my thoughts go back to a house on Garfield Street in Janesville. My wonderful grandma, Janet, had Alzheimer’s and moved in with Mom and me. Though she felt lost at times, we did all the little things that made her feel loved.

We had help from Medicare, and it was there, just like it’s there for my Mom today. Medicare is a promise, and we will honor it. A Romney-Ryan administration will protect and strengthen Medicare, for my Mom’s generation, for my generation, and for my kids and yours.

So our opponents can consider themselves on notice. In this election, on this issue, the usual posturing on the Left isn’t going to work. Mitt Romney and I know the difference between protecting a program, and raiding it. Ladies and gentlemen, our nation needs this debate. We want this debate. We will win this debate.

This is politics. But it is also unfortunate, for a number of reasons. Most unfortunate of all is the false suggestion that Medicare is like Social Security, a program where one pays in to receive certain benefits. Christopher Conover explains:

Note that for those who started receiving Medicare in 1980, the situation was much worse. Because Medicare did not begin until 1966, beneficiaries had only made Medicare payroll tax contributions for at most 14 years rather than for a full working career (in contrast, the numbers for 2010 assume that beneficiaries contributed for 42 working years: from age 22 through 64).

Over a lifetime, Medicare beneficiaries typically receive two to six dollars in benefits for every dollar they paid in Medicare payroll taxes... So today and for the foreseeable future, the only group that self-finances their Medicare benefits are those who earned roughly three times the average wage—about $130,000 a year in 2011—throughout their working careers. This implies lifetime earnings over a 42-year career in excess of $5 million—a figure applicable only to a tiny fraction of the U.S. workforce.

The real debate Ryan talks about now is not whether Medicare should shrink—both parties acknowledge it needs to shrink, as part of our fiscal burden—the debate is over how to shrink it, whether through bureaucratic rationing or through empowering consumers in a more competitive marketplace. But under Ryan’s plan, things move much more slowly than the fiscal picture indicates. As the Congressional Budget Office details:

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.

Essentially, CBO’s calculations indicate a Medicare system where the vast majority of retirees, more than 60 percent, are still in the “old Medicare” system by 2030. And even more will functionally be in a premium supported version of fee for service Medicare, since it would be offered as a choice under Ryan-Wyden. Indeed, we could easily see a system where as few as one out of every four seniors are in the system Ryan originally wanted for all seniors: one where premium supported Medicare drives more price-conscious decisions within a transparent marketplace.

There’s no question that Ryan’s plan has a higher chance of working than President Obama’s, where reliance on bureaucrats insulated from politics is paramount. But by limiting the debate to the parameters Ryan frames, the 2012 Medicare debate essentially becomes a more modest argument over workable, efficient policy, not one regarding the size and scope of government. Instead of a debate about principle, the 2012 Medicare debate has become one about which technocratic approach works better.

Benjamin Domenech

Benjamin Domenech (bdomenech@heartland.org) is a senior fellow at The Heartland Institute. Domenech... (read full bio)