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Paul Ryan's Medicare Plan: How to Explain it to a 5-Year-Old
Very nearly everyone is confused about how the Ryan Medicare reform works. It's not just you. Two-thirds of the people who are getting paid to talk about it in the news media have no idea what the plan is. I was confused this morning, and I'm still confused on some of the finer points. But I did my research, and I'd like to share it with you. The Ryan plan has been through three versions. First was the Path to Prosperity Prosposal, which Rep. Ryan put forward in December 2010 as an idea. The Path to Prosperity was popular, and got picked up by the rest of the party. Some changes were made, compromises hammered out, and that became the House Budget that was passed in April 2011 (but never enacted into law). Finally, there was the Ryan-Wyden plan. Ryan and a Democratic Congressman named Rep. Wyden came up with it as a compromise plan after the Democrats said that the Ryan Plan could leave seniors vulnerable. It was first presented in (I believe) December 2011. The big problem for the last few days is that everyone is talking about the Ryan Plan, but nobody is talking about the correct Ryan Plan. Even on the news, people are talking about the Budget version from April, not the Wyden version from December. Ryan-Wyden
is apparently not widely known, even though it ended up featuring prominently in the 2013 edition of the Path to Prosperity, completely replacing the original plan from last year. Perhaps the revision got so little attention because there was no budget battle this year. Hopefully that will change as the presidential race progresses. Anyway, over on Reddit, they have a forum called "Explain Like I'm Five," where people ask questions about big, complicated things, and everyone has to answer in simple, easy-to-understand terms, as if talking to a five-year-old. Today, someone asked about the Ryan plan. Here is my explanation of the Ryan-Wyden plan to reform Medicare, as I would explain it to a five-year-old (with more wonky sidebars where appropriate):
After the Ryan plan becomes law, nothing would change for ten years. Anyone who is old enough to be on Medicare when the ten years are up would be free to keep the old system until they die. In other words, this plan only affects people who are younger than 53 years old.
Under the new system, people on Medicare would get an annual check from the government. Then, they would use that check to buy insurance. Whenever they go to the doctor or the hospital, the insurer then pays the doctors for any medicines or surgeries the patient needs. This is called the "premium support" model, because the government helps people buy their own insurance. Premium support is a big difference from how traditional Medicare works: today, people on Medicare go to the hospital or the doctor, and the government pays the doctors for all the medicines and surgeries. This is called "fee-for-service," because the government is paying for the medicines directly, not for insurance.
Wonk note: Premium support is the key idea in all versions of the Ryan plan.
People who get these government checks (which are called "vouchers" or "premium support payments") would also be given a list of all the different insurance plans they are allowed to buy with their check. Each of these plans would have to meet a minimum list of requirements, set by the government. These requirements would have to be at least as good as today's Medicare.
None of these plans would be allowed to refuse to sell their plan to anyone. You could still buy the insurance even if you're already sick.
The list would be different in each area of the country. This is because insurance companies usually rely on "networks" of doctors, and many insurance companies don't have large "networks" in all parts of the country. It is also because doctors and medicine cost different amounts in different parts of the country, so prices will be different.
WONK NOTE: the "areas of the country" mentioned above would be the four Medicare regions that are already used for Medicare administration today.
One of the plans on the list would be the traditional Medicare system. This is called a "public option," because we, the public, would be paying directly for the medical care of people who choose it. If people like having the government be their insurance company, they could continue to have that.
Wonk note: This is new in Ryan-Wyden. Yes, folks: the Republican plan now contains a public option.
Every insurance plan would have its own price. Some of them would provide only the standard Medicare coverage that everyone gets. Those plans would be the least expensive on the list, and they would compete to get even lower. Others would provide even more extra coverage, beyond what the government requires. Those would be more expensive, but some people might want to have the extra coverage.
The amount of money people get in their premium support checks would be equal to the price of the second-least-expensive plan on their list. People would not be given less money than they need to buy insurance; they would always have enough to afford at least two of the approved plans. They could pay extra, with their own money, for more expensive plans, or they could take the cheapest plan instead and keep the money they save for themselves.
WONK NOTE: This is the most important change between the first two Ryan plans and Ryan-Wyden. The original plans both used a precalculated formula to set the amount of the vouchers, but the criticism is that seniors would be left with far too little money to pay for basic Medicare services, because the formula was too stingy. This change nullifies those concerns: seniors will now always have access to standard Medicare services, either through traditional Medicare or a private plan, depending on who can deliver those services for less. The downside to this fix is that it becomes harder to guarantee cost-shrinkage at the pace the plan calls for.
Everyone hopes that introducing government-subsidized competition will help everyone find ways to lower the costs of doctors and medicine. But some people don't think that it will make doctors cheaper, and they might be right. If going to the doctor keeps getting more expensive even after they've switched to the new plan, then the people running the new plan will try one of the ideas President Obama had to try to make doctors cost less: the government will give them less money. If this happens, the people in Washington will give less money to doctors who are still using the "fee-for-service" plan, and it will give people less money in the premium support checks.
WONK NOTE: the cap on the per-year per-beneficiary cost increase under the Ryan-Wyden plan is GDP + 0.5%. This formula is -- deliberately -- the same as the cap provided under the Affordable Care Act. In other words, if the market fails to do what Republicans hope it will do, we'll try the Democratic plan instead, which is simply cutting the amount of money doctors get in reimbursements until they either lower costs or quit Medicare entirely. I repeat: the cap imposed by Ryan-Wyden is the same as the cap imposed by the Obama plan. However, like "doc fix", the odds of this mechanism ever being enforced are essentially nil, regardless of whether they come under the ACA or the Path to Prosperity; Congress will just suspend the cuts indefinitely. But the concept of Congress's willful self-deception is too much for a five-year-old to handle, isn't it?
If the government decided it had to stop putting as much money into premium support checks, some people might not be able to afford any of the plans on the list with the check. If they were poor, and relied on that check to pay for their insurance, they wouldn't be able to afford any insurance! The plan says that, if the plan doesn't work, and some people end up not being able to afford any health insurance, the government will have to send them another check with enough money so they can.
WONK NOTE: if the worst-case scenario happens, and the Ryan-Wyden plan doesn't reduce costs enough, and Washington allows the scheduled Medicare cuts to go through according to the Ryan/Obama formula, low-income seniors will receive supplemental checks as necessary to allow them to make up the difference and continue buying health insurance. Medium- and high-income seniors would have to make up the difference out-of-pocket. In other words, the fallback plan is means-testing Medicare. The hope is that this will do less damage than simply cutting reimbursements so far that Medicare doctors abandon the system.
The new plan would also make some changes that are easier to understand: it would make it so that people won't be put in the program until they are 67 years old, instead of 65 like today (raising the retirement age). Each state would be given control over all the Medicare money that is intended to be go to the people in their states (the "block-grant" change). No one would be required to buy insurance (repealing the insurance mandate). Some of the new ideas in President Obama's plan would not be tried (the insurance exchanges and the IPAB).
All things considered, I really like this plan. I think it deals with the Medicare bankruptcy problem in a very ambitious way, which might just work to our resounding benefit, but it has several levels of elegant fallback plans built in to make sure that the United States (1) continues to subsidize high-quality medical care to seniors, while (2) ensuring that the most vulnerable (the poor and the very sick) get the full medical treatment they've come to depend on, and (3) saving our national budget from impending armageddon. I don't think the Democratic plan manages any of those; its go-down-with-the-ship mentality toward traditional Medicare without reform is really sort of a death sentence for a lot of future senior citizens, as the Medicare system will become totally overwhelmed from per-person spending cuts even as it (paradoxically?) becomes completely unaffordable on a nationwide basis. Sources I relied on for this analysis: The Path to Prosperity, 2013 Edition (pages 52-54 ish) Bipartisan Policy Center analysis ABC News: A Primer on the Ryan Plan Highly partisan but very easy-to-understand explanation at NRO There is much more to say about the rest of the Ryan Plan, especially his plans for taxing and discretionary spending. Not all of it is good stuff, I'm sorry to say. But the most important part of his plan is the Medicare reform, because failing to reform Medicare will literally destroy the economy within a couple of decades, so I've zeroed in on it for now. EDITORIAL NOTE: It's late. There may be typos. I'll deal with them in the morning. EDITORIAL NOTE FROM THE NEXT MORNING: There were typos. I dealt with them.