Wednesday, April 13, 2011

Two Visions for Medicare

I must applaud the President for today's speech in which he finally and at long last takes the long-term budget imbalance seriously.  There was a surprising amount of finger pointing for a person who claims to be transcending partisanship.  That is especially true in light of the fact that President Obama's proposed policies, as put forth in his own annual budgets, have never shown how he would put the economy on a path with a declining debt-GDP ratio, even after the economy fully recovers from the recession.

But let's put that inconvenient truth aside for the moment.  I am delighted that these fiscal issues are now squarely on the national agenda.  If only someone could lock President Obama and Congressman Ryan in a seedy hotel room, turn off their access to cable, give them an endless supply of coffee and cold sandwiches, and not let them leave until they come to agreement, the nation could take a large step forward.

What I found most interesting is the contrast between the President's vision for Medicare and Congressman Ryan's.  There are two major issues:
  • How quickly should Medicare spending rise?
  • What happens if health care costs rise faster than the limit on spending?
As to the first question, the President proposes to set "a new target of Medicare growth per beneficiary growing with GDP per capita plus 0.5 percent."*  By contrast, Ryan proposes growth at the rate of inflation. The difference is probably about 2 percent per year.

As to the second question, the President gives authority to the "Independent Payment Advisory Board (IPAB)."  By contrast, Ryan proposes that seniors use their "premium support" to shop among competing private insurers.

Here we see the fundamental differences between the parties: One believes in spending more and allocating that spending via central planning.  The other believes in spending less and harnessing individual choice and competition to ensure that the money is spent wisely.

To be sure, there is room for compromise, especially on the first question, but the issues are not just numerical.  The parties start with fundamentally different visions of markets and government.

*The quotation is from an administration fact sheet I was emailed.