Ignore the Fiery Rhetoric: Obama and Romney Have Essentially the Same Plan for Medicare

Commentary about business and finance.
Aug. 22 2012 4:20 PM

Obama and Romney Agree on Medicare

If you ignore the fiery campaign rhetoric, you’ll see an astonishing level of consensus.

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Both Ryan and Obama want to give Medicare a finite growth target, they just diagree on how to implement these cuts

Photograph by Marc Serota.

Democrats have been salivating over the chance to hit Republicans as Medicare-cutters ever since Rep. Paul Ryan turned his budget into holy writ for the House GOP. And Republicans have been deriding Obama as a Medicare-cutter ever since the Affordable Care Act derived some of its savings from rollbacks of subsidies designed to induce private insurance plans to bid for the right to cover senior citizens. Meanwhile on the elite level, a different—indeed completely contrary—debate is taking place, in which pundits argue about who’ll do a better job of cutting Medicare. David Brooks says it’s Ryan and Mitt Romney who are really serious about axing the program, while former Obama OMB Director Peter Orszag denounces Ryan/Romney as relying on an unworkable “private-market tooth fairy.”

For my part, I think it’s perverse that the substantive focus of the campaign has shifted away from the more pressing subject of mass unemployment. But as long as we’re talking long-term entitlement policies, it’s worth noting that on Medicare, Obama and Romney actually agree about almost everything.

In fact, if you consider it at a sufficient level of abstraction, they have essentially the same plan to control Medicare spending. And it’s a pretty good one.

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To see why, you have to understand why Medicare spending—almost uniquely—is truly “out of control.” The way most programs work is that Congress appropriates some money for them, and then the money gets spent. If spending is going up on something you don’t approve of, you might say it’s “out of control,” but in fact it’s being very precisely controlled by Congress. Social Security and a few other smaller programs are known as “entitlements” because they’re exempt from the annual appropriations process. You automatically get a certain Social Security check each month based on a fixed benefits formula. But the way the formula is written still ensures that this is a finite expense.

Medicare is different. It’s an open-ended promise to pay the bills for most of the health care services consumed by the elderly. It’s almost as if the government had a program that just gave senior citizens free shoes in unlimited quantities. The main difference is that undergoing medical treatment is generally unpleasant and it has no real resale value, so in practice people only want to consume so much of it.

Still, this is an open-ended commitment, meaning that when new health care services are invented or existing services become more expensive, the program’s budget expands potentially without limits.

Both Ryan and Obama want to put an end to this and give Medicare a finite growth target. And, indeed, they’ve both converged on the same target. Ryan put out two budget plans based on very stingy Medicare proposals: The most recent version of his idea caps Medicare growth at the underlying GDP growth rate plus 0.5 percentage points. Obama, in his remarkably little noticed Fiscal Year 2013 budget proposal, offers the very same target on Page 33. Both campaigns, in other words, propose putting Medicare on a fixed diet and they agree on the precise diet.

Where they disagree is on how to implement the cuts. Ryan’s proposal is to turn Medicare into a voucher program where seniors would get a subsidy with which to buy an insurance package, with the value of the subsidy limited by the overall growth target. Obama’s proposal is to hit the growth target the way foreign single-payer systems limit their costs, with more aggressive bureaucratic management of what Medicare is willing to pay for and how much it’s willing to pay.

The difference between outsourcing (Ryan) and centralized rationing (Obama) is an important one, but from a patient’s point of view they might end up looking pretty similar. Under Ryan’s approach, the poor will be left with bare-bones plans and more affluent seniors will either pay higher premiums to get more deluxe plans or else pay out-of-pocket for noncovered services. Under Obama’s approach, the poor will be left with bare-bones Medicare and more affluent seniors will either buy separate supplemental insurance plans or else pay out-of-pocket for noncovered services. The workability of Obama’s idea, in my view, is well-validated by international experience while the Romney/Ryan alternative amounts to taking a leap of faith in the magic of the private sector. But ironically it’s essentially the same leap of faith Obama is taking in his signature health care program for nonseniors—the view that an adequately regulated, subsidized system of private insurance plans can provide reasonable coverage at reasonable cost.

Indeed, while at a superficial level there’s a sharp philosophical contrast here between the GOP’s faith in the private sector and Obama’s faith in bureaucratic management in fact but in fact both approaches rely on effective central planning. To make the vouchers work, regulators need to adjust the value of each person’s voucher for age and health status and need to define a minimum acceptable benefits package. Regulators capable of doing that well should also be capable of effectively managing a government-run program and vice versa.

The real difference between the two plans is subtle and relatively small compared to the point of consensus. Under either version, seniors will face the novel situation of potentially being denied useful medical treatment on the grounds that Medicare can’t afford to pay for it. Over the long term, something along those lines is likely inevitable, but it’s striking that both sides have arrived at the exact same figure for how much it’s reasonable for Medicare to spend. Given how far apart the parties are on other economic issues—tax rates, health care for the nonelderly, the appropriate level of environmental regulation, and so forth—the meeting of the minds on the appropriate federal financial commitment to retirees’ health care is truly striking. Even more striking is that since both sides basically agree, we’re getting no real debate over whether this GDP+0.5 percent number makes sense or where it comes from.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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