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Obama v. Ryan on Cost Control

Who's got a more serious plan to reduce the deficit, the Republicans or President Obama? My latest Kaiser Health News column addresses that question:

For the better part of two years, the debate over how to control health care costs had a certain one-sided quality to it, because the Democrats had a plan and their critics did not. Democrats were forced to put their ideas on paper, with specifics, and subject them to nonpartisan accounting. All the critics had to do was attack.

And attack they did. Sometimes they said the Democrats' plan, which eventually became the Affordable Care Act, did too little. (It'll blow up the deficit! It'll bankrupt the government!) Sometimes they said it did too much. (It'll stop innovation! It'll create death panels!) Sometimes they even said the two things simultaneously, which is the kind of neat rhetorical trick politicians can pull off only when they have no plans of their own.

All of that changed this month, when House Budget Committee Chairman Paul Ryan, R-Wis., released his budget proposal and included within it radically conservative reforms of the nation's major health care programs. Ryan would repeal altogether the coverage expansions of the health law. He also would increase the eligibility age for Medicare and then turn it into what most of us would call a "voucher scheme," eliminating in 2022 the traditional government-run insurance plan for everybody who retires in that year and replacing it with a fixed financial subsidy that seniors can apply toward the cost of regulated private insurance policies. Last but not least, Ryan would transform Medicaid into a block grant. Instead of guaranteeing federal funds to cover everyone that becomes eligible for the program, Washington would simply give the states a pre-determined, lump sum of money -- and let states figure out how best to use it.

On paper, the Ryan plan saves the government a lot of money, at least in the long run. But upon closer inspection, the savings turn out to be illusory, cruel or some combination of the two. In fact, far from proving the superiority of conservative health reforms, Ryan's plan validates what his political adversaries have said all along. The Affordable Care Act represents a serious and realistic approach to controlling the cost of medicine -- one that would be even more serious and realistic if the long-term budget changes President Barack Obama just recommended become law.

Although privatization has its own ideological appeal to conservatives, the real reason Ryan's program would reduce government spending on health care is that it substantially reduces the amount of insurance people would get. Repealing the health law would deprive more than 30 million people of insurance and leave others with more limited benefits. Meanwhile, the fixed formula Ryan would use to calculate the Medicaid block grants and Medicare vouchers would cause the value of each to rise far more slowly than the cost of health care. States would end up reducing enrollment or scaling back benefits or both. And, according to the Congressional Budget Office, seniors would end up individually responsible for more than two-thirds of their medical costs.

The theory behind this effort is that, by making individuals more conscious of the cost of health care, they will act more like consumers -- thinking twice before getting extra treatments and shopping around for insurance policies that provide better value at lower costs. But Republicans take this argument, which has some truth, way too far. The Medicare Advantage program, which already offers seniors the option to enroll in private insurance, hasn't produced vast savings. Experiments with high-deductible coverage suggest it causes beneficiaries to skimp on useful care, including preventive treatments that prevent most costly, acute episodes later on. As Len Nichols, an economist at George Mason University, puts it, Ryan and his allies are "substituting algebra for health care policy."

And that's to say nothing of the political perils in Ryan's strategy. As presently structured, his plan envisions a seismic shift away from traditional Medicare to a voucher worth considerably less money. Older voters are famously sensitive to even modest alterations in government benefit programs for the elderly. The idea that lawmakers would stand behind such an abrupt change, and then let it evolve in a way that so drastically reduces the federal contribution toward retiree health care, is difficult to accept.

The alternative is to control health care costs a bit more gradually, which is what the federal health overhaul does. Like Ryan's plan, the Affordable Care Act attempts to restrict the federal government's contribution toward health care expenses, via constraints limiting the growth in Medicare (although not Medicaid) costs as well as the tax subsidy working-age Americans get for employer-sponsored insurance. But the constraints are looser. For example, unlike Ryan's plan, which uses a fixed-value voucher to set Medicare spending, the health law sets less restrictive growth targets (which the president's debt plan would further tighten) and then calls upon an independent commission -- the Independent Payment Advisory Board -- to recommend reforms when Medicare costs exceed those targets. IPAB's recommendations can change what Medicare pays the providers of care, but the board, by law, cannot alter Medicare benefits or eligibility.

In addition, the health law's formula doesn't attempt to reduce spending by focusing exclusively on direct cuts to individual beneficiaries. On the contrary, the law distributes spending reductions across the health care system, affecting virtually everybody -- whether it's reducing Medicare payments to hospitals, eliminating extra subsidies for private Medicare Advantage plans or demanding greater rebates from pharmaceutical companies that contract with government insurance programs.

Most important, the Affordable Care Act doesn't merely limit health care spending, in the faint hope that consumers, on their own, will produce a more efficient market. The law also introduces reforms that will put in place technological infrastructure and financial incentives to promote higher quality care. To some extent, that means sweeping, system-wide changes like the introduction of electronic medical records or the creation of an institute that will determine which treatments work better than others. But it also means dozens of more narrowly focused efforts, like a new public-private partnership to promote quality care or pilot programs in "smart malpractice reform." The idea is to experiment with virtually every payment reform experts have tried successfully on a small scale, in the hopes of replicating the successful ones across the country.

In short, the Republican vision for health care reform, as expressed by Ryan, is to limit federal spending on medical care, at levels far below what we spend today, and then let individuals make the best of the situation. By contrast, the health law calls for more gradual, more shared sacrifice by everybody involved with health care -- with a focus on promoting efficiency so that lower spending needn't result in lesser care. That's not only a more realistic approach to controlling costs. It's also a more humane one. 

This column is a collaboration between TNR and Kaiser Health News. KHN is an editorially independent news service and is a program of the Kaiser Family Foundation, a nonpartisan health care policy research organization, which is not affiliated with Kaiser Permanente.