The Ryan Budget

The political left is doing the St. Vitus dance over Paul Ryan's budget. This is the proposal Ryan put forth as Chairman of the House Republican Budget Committee to deal with the nation's fiscal crisis. Democrats are labeling it as "radical," and "extremist," especially Ryan's plans to reform Medicare.

The president has called the Ryan budget "social Darwinism." Democratic National Committee Chairwoman, Debbie Wasserman Schultz, said it "would end Medicare as we know it." Not to be outdone, Republicans have launched some rhetorical hand grenades of their own. Mitt Romney told CBS News' Bob Schieffer that "there's only one president that I know of in history that robbed Medicare $716 billion to pay for a new risky program of his own that we call ObamaCare."

As an indicator of the quality of the debate that is about to ensue in this political season, one Youtube video shows a Ryan look-a-like pushing an elderly patient in a wheelchair over a cliff. A counter video shows an Obama look-a-like pushing a similar patient over a cliff.

So how much difference is there between the two approaches to Medicare? As Tom Saving and I explained the other day, surprisingly, very little. There is no important difference in Medicare spending under the two approaches — even when the estimates of the president's budget are made by his own Office of Management and Budget and the Ryan plan is projected by Ryan himself. Nor is there much difference in implementation — at least till this point.

Much has been made of the fact that Paul Ryan would create "vouchers," allowing seniors to buy private insurance. To hear the critics tell it, this would radically transform Medicare by "privatizing" it. But we already have a voucher program under Medicare. It's called Medicare Part C, or the Medicare Advantage program. One out of four beneficiaries has taken advantage of it to enroll in the same kind of health insurance plans non-seniors typically have.

President Obama has long favored reducing the payments to these plans and significant cuts are part of the Affordable Care Act (ObamaCare). However, neither the president nor any other prominent Democrat is calling for the abolition of these very popular plans. To the contrary. The administration is busily shoring them up with "bonus payments," fearful that a significant number of plans leaving the market would anger elderly voters.

Although Paul Ryan clearly favors an expansion of private Medicare plans, his budget implicitly endorses the very same cuts in payments to them that are incorporated in current law. In the original Ryan budget, all seniors would have enrolled in private plans. However, in the latest version, everyone will have the option of remaining in the traditional Medicare program, just as they do today. So regardless of how much the private plans are paid, total spending won't be controlled unless there is a way to control traditional Medicare's costs. How would Ryan do that?

One new idea in the Ryan plan is to eventually increase the age of eligibility from 65 years old to 67 years old. But since the president has signaled a willingness to do the same thing in budget negotiations with Republicans, it's hard to make too much of this.

We know how spending will be curtailed under the president's approach. Under the 2010 heath reform law, the first line of attack will be demonstration projects and pilot programs that point the way to more efficient ways of delivering care. Unfortunately, three separate Congressional Budget Office reports have concluded that the demonstration projects are either not working or are producing lackluster results. If efficiencies cannot be found, the fallback mechanism under the law is to limit the growth of payments to providers.

Here's the problem with that. As the most recent Medicare Trustees' report points out, Medicare payments to physicians are 80 percent of what private insurers pay and they will fall to 40 percent over the next two decades. Medicare hospital fees are less than 70 percent of the amounts paid by private insurers, and this percentage will also decline over time. The Medicare actuaries predict that one in seven hospitals will not survive these cuts over the next eight years and seniors will have increasing difficulty finding doctors who will see them.

This is where the advantage goes to Ryan. If something in the Democratic approach actually works, Ryan is free to adopt it as part of his approach. But he is not locked into it. In an article in Health Affairs, Saving and I proposed a number of ways Medicare spending could be curtailed without squeezing doctors and hospitals. These include allowing seniors to pay the market price for their services at walk-in clinics and other retail health care outlets. We also proposed allowing seniors to manage more of their own health care dollars through Health Savings Accounts.

The Ryan approach at least has the possibility of making these cuts less painful by turning to market-based reforms rather than suppressing provider fees.

“It’s not over nothing. From your article:

“But Ryan, just like the last time he pontificated on the budget, doesn’t get to “balance” until 2040 — nearly 30 years hence.”

Tell me when we get to a balanced budget under Obama?”

Same time Ryan’s will balance, which is never, since even the math he uses is voodoo compounded on assumption. The fight between the Democrats and Republicans is a fight over nothing. Just smoke and mirrors.

We will balance the budget one way or another. Greece has chosen the most difficult path.

2040 is not unreasonable. The problem is people want everything done now. I remember when I took out a loan on my house. Friends told me for years don’t bother paying it off, take the money and invest, etc. Well, my house has long since been paid for and I can retire early. Those same people are sitting in homes underwater and now are complaining about me retiring. 2040 is not that long from now-if we can tolerate the noise.

I think politicians and economists underestimate the positive effect lowering spending and/or taxes has.

For example, Bush was surprised at how much extra revenue he collected from his tax cuts. He 'budgeted' extra money for them, but, apparently, "they don't cost money, they SAVE money". Welfare reform saved more money than budgeted, also, and the federal budget went in the black during Clinton's term. That wasn't predicted.

However, increasing spending always winds up costing more than expected. And increasing taxes never brings in the money politicians count on, if indeed it brings in any extra money at all.

Therefore, I believe that Ryan's budget will actually lower spending more than predicted, and bring in more revenue than predicted. If we have a culture of self reliance instead of a culture of dependence, that encourages more people to work instead of take benefits. Consider all the extra tax revenue from a roaring economy, to say nothing of all the extra oil and gas taxes and royalties from drilling on government land.

“I think politicians and economists underestimate the positive effect lowering spending and/or taxes has.”

Yea, I remember when Newt took over the House in 95. No one thought that the budget would get balanced for many years - they only hoped the deficit would come down.

We may not like a lot of what’s Romney’s done on the social side, but he’s untouchable on the economic side. He will get things under control, once he has the power. He’s demonstrated that in the past, many times, and he’ll do the same as president - and he’ll likely go over the heads of Congress if the Dems try to stop him, just as Reagan did.

“I think politicians and economists underestimate the positive effect lowering spending and/or taxes has.
For example, Bush was surprised at how much extra revenue he collected from his tax cuts. He ‘budgeted’ extra money for them, but, apparently, “they don’t cost money, they SAVE money”. Welfare reform saved more money than budgeted, also, and the federal budget went in the black during Clinton’s term. That wasn’t predicted.

However, increasing spending always winds up costing more than expected. And increasing taxes never brings in the money politicians count on, if indeed it brings in any extra money at all.

Therefore, I believe that Ryan’s budget will actually lower spending more than predicted, and bring in more revenue than predicted. If we have a culture of self reliance instead of a culture of dependence, that encourages more people to work instead of take benefits. Consider all the extra tax revenue from a roaring economy, to say nothing of all the extra oil and gas taxes and royalties from drilling on government land.”

This is true. Lowering taxes and regulations naturally causes an increase in revenue. I think the best solution would be a flat tax like Newt’s, or a Fair Tax, perhaps with a transition phase using Cain’s 999 plan. The great problem here is that there is no real decrease in spending. He cuts medicaid just to raise the spending in Medicare. He also retains the “good” parts of ObamaCare, which is requiring insurance companies to insure someone after a life of eating at McDonalds with the triple meat burgers and they suddenly need a triple bypass heart surgery. They also keep the public-private healthcare exchanges with the government meddling, as usual, in the healthcare system. The overall “cut” is so slight that it is inconceivable to me why they are fighting over it at all. The other problem is that even in their own “math,” they are making estimates of future growth based on rates today... which are completely debt driven, not actual growth. They are also underestimating the increase in debt these failed programs are going to produce over the coming years. IOW, it’s just gimmickry, and both parties are fighting over whose gimmicky version is best.

“He’s demonstrated that in the past, many times, and he’ll do the same as president - and he’ll likely go over the heads of Congress if the Dems try to stop him, just as Reagan did.”

When, exactly, did Romney demonstrate anything like that? He broke every promise he ever made in Massachusetts and even left them with a new government entitlement permanently enslaving a large part of the citizenry in his state to the government.

I also still do not understand what huge differences there are in Romney’s and Obama’s economic “plans.” Except for a slight lowering of taxes on the top, apparently to be paid for with a closing of “loopholes” and “deductions” like for people who pay state property taxes, the progressive nature of the tax system is maintained and no significant gutting of the government takes place. Recall how he helped Massachusetts. He promised not to raise taxes, so he raised fees instead. He has promised to cut 500 billion from the deficit, but even on this his promises on how he will do it are so utterly vague that there is no way to even verify that it is true. Meanwhile he wants to increase defend spending. Listening to Romney is like listening to Obama’s Hope and Change pre-Presidency speeches all over again. Talking much but not saying anything at all. I doubt that there is a man alive who can pull up some part of Romney’s “plan” without having to go look it up first on his website, and even then it’s never the whole story since Mittens in “closed meetings” says different stuff! That’s where I got the whole closing of “loopholes” for property taxes thing from. A speech to some donors he made, but you won’t find that stuff on his site. That’s really the whole problem with Mittens. He never gives the whole story for anything he plans to do! And you guys just aren’t seeing how familiar this is, even though we condemned the liberals and the feckless masses for falling for it when OBAMA did the same thing during his run.

I for one am tired of anonymous Presidents, but that’s exactly what we’re getting. I honestly do not think there is a future for the country that doesn’t involve an economic collapse at this point. Our last chance to get out of this comfortably is lost with Romney. To be honest, when I think further on it, it was probably lost during the Bush years. It’s probably already toolate, and it makes no difference who is elected, even if we had gotten a radical Ron Paul type. Whoever will be President after this election will simply be the captain to ride the Titanic down to the bottom of the ocean.

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