Ryan-Rivlin Health Care Plan Unveiled

Many of the recent debt reduction plans—including, the fiscal commission's Co-Chairs' recent proposal, the Galston-MacGuineas plan, and the Debt Reduction Task Force plan have included the important idea that health care cannot continue to grow without constraints. Now, two members of the White House's fiscal commission have put forth an innovative proposal to fundamentally change public health care.

Congressman Paul Ryan (R-WI) and Alice Rivlin just unveiled a health care proposal that would substantively change federal payments for Medicare by instituting a voucher system for retirees entering the Medicare system after 2021. This would gradually change Medicare from its traditional "fee for service" approach into a system where senior citizens would purchase their own health insurance with these vouchers. The amount of the vouchers would be calculated based on the average cost of each Medicare enrollee in 2012 and permitted to grow at the annual rate of growth in GDP per capita plus one percentage point. The retirement age would also be increased by two months every year until it reaches age 67 by 2032.

The plan also has a cost-sharing mechanism that would start in 2013 and in future years would be indexed to growth in spending per beneficiary for Part A and B. The cost-sharing changes would establish a single $600 deductible for Parts A and B, impose a 20 percent coinsurance cost for Part A and B after satisfying the deductible, and establish a catastrophic cap after accruing more than $6,000 in cost sharing payments. For Medigap, the beneficiary would be subject to a $500 deductible, require the beneficiary to spend at least $2,750 before being subject to the catastrophic cap and would limit cost-sharing coverage between the deductible and a catastrophic cap to 50 percent of the Medicare cost-sharing requirement.

Medicaid would be turned into a block grant to the states. Block grant funding would grow with the currently projected Medicaid population and with GDP per capita plus one percentage point. Capping the growth of the vouchers and the block grant would lead to significant savings of what the federal government will spend on health care.

For people eligible for both Medicare and Medicaid, Medicaid would no longer receive Medicaid assistance for Medicare premiums but would instead receive money from a newly created federal savings account. This account would equal $6,600 in 2012 and would grow at the rate of GDP growth per capita plus one percentage point. Their proposal would also repeal the CLASS Act and strengthen malpractice laws.

The CBO analysis of the Ryan-Rivlin plan projects it would reduce budget deficits by $280 billion over 2011-2020 and would significantly lower federal health care expenditures after that. The largest piece of this savings comes from the Medicaid block grants by 2020. Even still, under this proposal, federal spending on Medicare and Medicaid will be about 7 percent of GDP in 2020 and 10 percent of GDP in 2050.

In a piece in the New York Times, Ryan wrote that this proposal may be "tough medicine," but is critical to the future of the country and of Medicare, saying that its current path is unsustainable and could bankrupt our government. We completely agree.