Crazy Rep. Paul Ryan(R) and His Wacky Budget Plan
The White House's 2011 budget is only the second-most interesting budget proposal released recently. First prize goes to Congressman Paul Ryan, the ranking Republican on the House Budget Committee, who's released a budget proposal that actually erases the massive long-term deficit.Ryan is claiming his plan will work because under perfect conditions - a perfect stock market, everyone doesn't get to collect Medicare or Social Security until they're 69 and tons of other ifs - even than we'll have a multi-trillion dollar difficult as taxes(Ryan's tax hikes on small business) go up.
That's not mere press release braggadocio. CBO agrees (pdf). Under the CBO's likeliest long-term scenario, deficits are at 42 percent of GDP in 2080. Under Ryan's proposal, we're seeing surpluses of 5 percent of GDP by that time.
But Ryan's budget -- and the details of its CBO score -- is also an object lesson in why so few politicians are willing to answer the question "but how will you save all that money?"
As you all know by now, the long-term budget deficit is largely driven by health-care costs. To move us to surpluses, Ryan's budget proposes reforms that are nothing short of violent. Medicare is privatized. Seniors get a voucher to buy private insurance, and the voucher's growth is far slower than the expected growth of health-care costs. Medicaid is also privatized. The employer tax exclusion is fully eliminated, replaced by a tax credit that grows more slowly than medical costs. And beyond health care, Social Security gets guaranteed, private accounts that CBO says will actually cost more than the present arrangement, further underscoring how ancillary the program is to our budget problem.
An important note to understanding how Ryan's budget saves money: It's not through privatization, though everything does get privatized. It's through firm, federal cost controls. The privatization itself actually costs money. The CBO's analysis of Ryan's Medicare changes tells the story well:
Both the level of expected federal spending on Medicare and the uncertainty surrounding that spending would decline, but enrollees’ spending for health care and the uncertainty surrounding that spending would increase.
Under the Roadmap, the value of the voucher would be less than expected Medicare spending per enrollee in 2021, when the voucher program would begin. In addition, Medicare’s current payment rates for providers are lower than those paid by commercial insurers, and the program’s administrative costs are lower than those for individually purchased insurance. Beneficiaries would therefore face higher premiums in the private market for a package of benefits similar to that currently provided by Medicare.
Moreover, the value of the voucher would grow significantly more slowly than CBO expects that Medicare spending per enrollee would grow under current law. Beneficiaries would therefore be likely to purchase less comprehensive health plans or plans more heavily managed than traditional Medicare, resulting in some combination of less use of health care services and less use of technologically advanced treatments than under current law. Beneficiaries would also bear the financial risk for the cost of buying insurance policies or the cost of obtaining health care services beyond what would be covered by their insurance.
That's a bit of a slog, so here's the translation: The proposal would shift risk from the federal government to seniors themselves. The money seniors would get to buy their own policies would grow more slowly than their health-care costs, and more slowly than their expected Medicare benefits, which means that they'd need to either cut back on how comprehensive their insurance is or how much health-care they purchase. Exacerbating the situation -- and this is important -- Medicare currently pays providers less and works more efficiently than private insurers, so seniors trying to purchase a plan equivalent to Medicare would pay more for it on the private market.
