What Paul Ryan's (Great) Medicare Message Gets Wrong About Medicare

...and why you can't blame reluctant Republicans for taking positions that, well, insure themselves against a risk like Ryancare

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Rep. Paul Ryan's budget has taken a beating this month. Newt Gingrich outright rejected his Medicare plan on NBC (before recanting his objection). A handful of Republican senators voted against it this week. And the official interpretation of New York's special House election, which turned surprisingly against the GOP, fingers Ryancare as the culprit.

That's the politics. Now to the policy. Ryan's YouTube defense of his Medicare plan is both a masterful revelation in public policy explanation and also a clear explanation why the public, and the GOP, is running away from it. Watch and keep reading.

Ryan's diagnosis of the Medicare crisis is spot on. In a fee-for-service system, taxpayers pay the government to reimburse doctors to treat patients, (Confusing? See the pic below.), putting the patient and the payer on opposite ends of the system.

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This creates a quality problem and a cost problem. It's a quality problem because if doctors know they're going to be reimbursed based on the volume, rather than the quality, of their coverage, they have little reason to contain costs. To understand why this is a cost problem, think about what kind of car you would drive if you knew taxpayers were going to pay for two-thirds of the lease. On your dime, you might get a Camry. On everybody's dime, you might demand a Porsche. The "Porschification" of health care is slowly bankrupting the government.

The president's plan would keep the relationship between doctors, patients and Medicare, but it would try to improve it in three ways. First, it would empower a board of experts to recommend new rules to make Medicare more efficient. Second, it would unleash a series of innovations in the hopes of untangling the Gordian Knot of health care inflation. Third, it would demand Medicare cuts to force hospitals to become more efficient. If the White House wants a marginal revolution in Medicare, Ryan wants a full transformation.


Ryan's plan (look left) takes government out of the insurance business. The government would give seniors a sum of money based on their income to help pay for a private insurance plan. In theory, the domino effect would work this way: (1) Without fee-for-service care, patients, rather than taxpayers, would shoulder a larger burden of health care costs; (2) With the taxpayer money pipeline closed, doctors would have a clear signal to provide more low cost treatments with more "bang for the buck." Quality would go up, costs would go down -- "the way it always works when the consumer is in charge," Ryan says.

You'll notice, however, that the word under the human figure above says "Patient," not "Consumer." The word matters. Consumers are good at demanding efficiency for products they understand: cheaper sandwiches, more fuel-efficient cars, etc. But nobody fully understands future risks. That's why insurance exists. In particular, seniors can't anticipate an illness that will cost $250,000 to treat every year, which why it's rarer around the world for private insurers to cover the old and sick without regulation. Medicare exists so that the government acts as risk buffer for the oldest, poorest and sickest.

"The way it always works when the consumer is in charge" is that consumers seek out and buy whatever gives them the best "bang for the buck." But expecting (or relying on) seniors to know what private insurance plan will best protect them against a potentially terminal disease they can't anticipate is expecting them to act as patient, doctor and Nostradamus, all at once. It's also asking private insurance companies to provide affordable coverage to the country's riskiest patients. Both might happen. But maybe not.

There's a reason this video is long on diagnosis and short on prognosis. Ryan's prognosis is a risky prayer. So you can't blame reluctant Republicans for taking positions that, well, insure themselves against a risk like Ryancare.