Health Care Entitlements and Fiscal Future Debated
At an event in Milwaukee hosted by the Concord Coalition, Rep. Paul Ryan (R-WI) and former Service Employees International Union President Andy Stern met to discuss the fiscal future of the United States in a debate which focused on health care reform.
Ryan, the incoming House Budget Committee chairman, is the author of “Roadmap for America’s Future,” a proposal for reducing the size of government. Stern was a major architect of President Obama’s health care overhaul. Both are members of the President’s National Commission on Fiscal Responsibility and Reform.
Though they approach the issue from opposite ends of the spectrum, both agreed the nation needs a plan to reverse its current fiscal course.
Entitlements Drive Debt
Stern and Ryan both said the problem of debt is primarily due to federal entitlement programs.
“Our deficits are on an unsustainable track. Our debt hits the stratosphere under our current policy,” Ryan said at the October event. “Once your debt hits about 90 percent of GDP, you really start slowing down your economy. Our debt is projected to get up to 800 percent of GDP by the end of the century, … and the real driver of this debt is entitlement programs, the autopilot programs—if you qualify for the benefit, you get it.”
Ryan requested that the Congressional Budget Office report on what the tax rates would be necessary if the United States had to sustain this entitlement spending via taxes. He presented graphs illustrating the CBO projected tax rates would increase from 10 percent to 25 percent for the lowest tax bracket, from 15 percent to 66 percent for the middle bracket, and for the top rate, from 35 percent to 88 percent by 2080.
“The CBO actually highlighted the next paragraph in their report to me,” Ryan said, “which pointed out that these rates could hurt economic productivity in the future. I think we can all see why.”
‘We Need a Plan’
While disagreeing with several aspects of Ryan’s Roadmap, Stern agreed with the need for a solution.
“The truth is that the problem is not discretionary spending. You could wipe it off the map tomorrow. The real problem here is health care and the net interest on debt,” Stern said. “Social Security is a pension plan that needs to be rebalanced. But we are in trouble chiefly because people are getting older, health care inflation is greater, and that’s why we need a plan.”
Model for Converting Medicare
Ryan says his plan would convert Medicare from its current unsustainable structure to a sustainable defined-contribution system. Seniors would receive support to enroll in more affordable private plans, and then could put the remainder of their subsidies into Medical Savings Accounts. This would encourage seniors to seek out plans that offered the best value for their health care needs.
Walton Francis, an economist and author of Putting Medicare Consumers in Charge: Lessons from the FEHBP, notes such a system already exists for federal government employees, through the popular Federal Employee Health Benefits Program (FEHBP) in which the government, acting as an employer, offers federal employees a contribution to be used in purchasing insurance.
“The FEHBP has outperformed original Medicare in every dimension of its performance,” Walton said. “It has better benefits, better service, catastrophic limits on what enrollees must pay, and far better premium cost control.”
Skyrocketing health spending has resulted from the patient, doctor, insurance company, and government programs not having “much incentive to spend health care dollars efficiently,” explain the Heritage Foundation’s Jason D. Fodeman, M.D., and Robert A. Book, Ph.D., in a recent report.
“A system that determines prices through administrative procedures rather than market processes disconnects the prices paid for health care services and products from both the costs incurred to provide them and their value to patients,” Fodeman and Book wrote.
Ryan’s plan would remove the current income tax exclusion for employer-based coverage, replacing it with universal tax credits for all who buy private coverage. Consumers could use these, along with employer contributions, to purchase affordable plans in exchanges similar to Utah’s, which serves solely as a free marketplace for health insurance.
This would be markedly different from the heavily regulatory exchanges created by Obamacare.
“Most of our $76 trillion unfunded liability is health care,” Ryan said. “We’re not going to change demographics, and the chief Medicare actuary testified before our committee that the President’s bill bends the cost curve upward, not downward. We can’t move forward until we confront the problem of health cost inflation.”
Ryan advocates replacing Medicaid with tax credits and debit cards that would cover health insurance premiums, deductibles, coinsurance, and copayments for low-income families.
Ryan’s proposal comes as many analysts signal the U.S. health care system is on the path to disaster if nothing is done to control spending. He suggests the answer is not the top-down, government-run cost-cutting measures seen in Obamacare and other proposals, but a bottom-up, pro-market approach.
“We have got to tackle these entitlement problems, because if we don’t, they’re going to tackle us,” Ryan said.
Kathryn Nix (Kathryn.Nix@heritage.org) is a research assistant in the Center for Health Policy Studies at The Heritage Foundation.
“Bending the Curve: What Really Drives Health Care Spending,” Jason D. Fodeman, M.D., and Robert A. Book, Heritage Foundation
“Roadmap for America’s Future,” Rep. Paul Ryan, House Budget Committee