The Battle Is Over Money, Not Philosophy

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Dean Baker

Dean Baker is co-director of the Center for Economic and Policy Research

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April 25th, 2011 10:28 PM

The Battle Is Over Money, Not Philosophy

Ever since House Budget Committee Chairman Paul Ryan put out his proposal for voucherizing Medicare we have seen a steady drumbeat of stories telling us that this is a battle over the size and role of government. This is not true. It is a battle over money.

This point is important because there are very few people in this country who are interested in debates over philosophy. Insofar as they do give it any thought, most people will say that they prefer small government over big government. They want to see government play a less intrusive role in our lives.

There are probably less than a hundred people in the entire country who support "big government" as a matter of principle. Unfortunately, most of them write columns in major national papers.

This is bad news for progressives because insofar as the Ryan plan is seen as being about reducing the size of government, then it could be acceptable to a substantial portion of the electorate. On the other hand, if the public understands that the Ryan plan will transfer tens of trillions of dollars from the middle class to the insurance and health care industries, the plan will become radioactive to politicians seeking re-election.

The basic story is that the Medicare system is far more efficient than the private insurance sector in delivering health care and holding down costs. This has nothing to do with whether we prefer the government or the private sector. It just happens to be true.

We know this because we have tested it. The government first opened up Medicare in a big way to private insurers in the mid-'90s when the Gingrich Congress pushed through Medicare Plus Choice. It turned out that Medicare Plus Choice raised costs. Beneficiaries with comparable histories cost about 10 percent more to treat in the private program than in the traditional Medicare program.

We tested the private-sector route a second time when President Bush pushed through his Medicare Advantage plan along with the Medicare prescription drug benefit in 2003. The nonpartisan Congressional Budget Office (CBO) concluded that Medicare Advantage also raised costs.

This is why the CBO calculated that Representative Ryan's voucher system would raise costs compared with the existing Medicare system. The CBO's projections imply that switching to the Ryan voucher system would raise the cost of buying Medicare equivalent policies by $30 trillion over Medicare's 75-year planning period.

This amount is approximately six times the size of the projected shortfall in Social Security over its 75-year planning period. It comes to almost $100,000 for every man, woman and child in the country. In other words, even in Washington, the burden of the Ryan plan is real money.

It is important to recognize that this $30 trillion figure is simply the increase in the cost to the economy of providing health care. This number does not include the shift in costs from the government to beneficiaries. The $30 trillion represents higher payments that would go to insurers, pharmaceutical companies, medical supply companies, doctors and other health care providers because the private system put in place under Ryan's plan is less efficient than the Medicare program.

This enormous waste, and the resulting transfer of income from taxpayers and beneficiaries to insurers and providers, has absolutely nothing to do with whether our preference is for big or small government. The relevant question is whether we want ordinary workers and retirees to pay tens of trillions more for their health care in the decades ahead in order to enrich the insurers and health care industry.

The answer to that question for the vast majority of voters would be a loud "no." If the public understood what the CBO is telling us - that the Ryan plan will hugely raise the cost of health care for retirees so that the vast majority will no longer be able to afford plans that are anywhere near the quality provided by Medicare - then there is no doubt that there would be massive opposition to his proposal.

However, if this massive upward redistribution of income is concealed as a debate over the size and role of government, then those who want to destroy Medicare may get their way. So, just remember, tell the "size and role" folks to shove it. The debate over the Ryan plan is about money; it's that simple.