Aug 17 2012

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Romney-Ryan Judo on Medicare

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"Rope-a-Dope" on Obama Medicare

 In seeking re-election in 1992, President George H.W. Bush was weighed down by an under-performing economy and the nuisance candidacy of Ross Perot, who launched a third party bid which fractured the GOP coalition. In addition, in Bill Clinton, Republicans faced a new and formidable opponent, quite different from the easy marks like Jimmy Carter, Walter Mondale or Michael Dukakis.

But amid the gloom, there was one bright spot.

When it came to foreign policy, no one could touch Bush, least of all an Arkansas governor, or so the thinking went at Bush HQ. And, even in a time of relative international calm, foreign policy mattered. Bush had unimpeachable foreign policy bone fides and successes. He had managed the end of the Cold War, the reunification of Germany and the successful coalition war to oust Iraq from Kuwait.

All Bill Clinton could talk about was his command of the Arkansas National Guard.

So it came as a surprise, and a source of derision, when news broke that Clinton intended to contest foreign policy with Bush. From the GOP point of view, this was a simply futile effort that would provide the gift of distraction that, in turn, would only serve to highlight Clinton’s inadequacy for the Oval Office.

But as it turns out, Bill Clinton may be many things, but he’s no dummy. The governor bucked conventional wisdom to exploit a weakness that hadn’t been thoroughly considered by the body politic. Indeed, Clinton hit Bush on an area where Bush was a self-proclaimed expert – China.

In hindsight, the GOP should have seen the possibilities of a China problem. Brent Scowcroft clinking glasses with China’s leaders only days after Tiananmen Square. US policy that prioritized the strategic China “relationship” above the aspirations of the courageous protesters. This in turn called into question China’s atrocious human rights record, which State Department officials were pained to call attention to.

In taking on Bush, Clinton asked painful questions. What exactly was the US doing to help the oppressed in China, and what exactly was the US getting in return for coddling the Chicoms?

 Suddenly, and unexpectedly, Clinton upended the foreign policy debate and put the Republicans on defense, taking on the role of forceful advocate of American values.

Republicans were outraged and flummoxed. Everyone knew that it was the Democrats who coddled communists while Republicans were the party that spoke out for American values and stood up for American interests. It was Reagan, after all, who had given the global foreign policy elite a bad case of the vapors by calling out the Soviet Union on its failure as a society.

How dare Clinton say that George Bush wasn’t standing up for America. But it worked. The China critique became yet another arrow in Clinton’s quiver, creating a compelling argument for change.

And that example is useful as the same dynamics may be at work on the debate on Romney-Ryan and Medicare.

Democrats could barely contain their glee when Mitt Romney selected Ryan as his running mate. Suddenly the man who single-handedly authored the GOP plan to eviscerate entitlements, slash spending and give all the money to millionaires was Romney’s right hand man.

Instead of having to defend the failing economy, Democrats saw new opportunities for the President to go on offense, taking on the traditional Democratic role as protector of entitlements and the middle class, disqualifying the Romney Ryan ticket and its support for “radical” Medicare reform and an “extremist” budget. The TV ads almost wrote themselves. The Republicans had “self destructed.”

But less than a week after Ryan’s selection, the new narrative is not working out as the Democrats had planned. Like the Bush Republicans 20 years ago, Democrats are startled and flummoxed to be playing defense as the GOP has hammered Team Obama on an issue that has been a cornerstone of Democratic leadership for nearly 50 years. Suddenly Republicans have a credible argument on Medicare, and the Democrats have no simple answer.

In the end, the Democrats have only themselves to blame.

Here are the facts.

In passing Obamacare in 2010, Democrats implemented government-mandated price controls to slow the growth of Medicare, starting with the laws implementation, next year. The ten-year cost of those controls – reductions in assumed baseline spending increases – was $716 billion.

Specifically, according to a report issued by the Congressional Budget Office (CBO) in July, in a ten-year budget window, Obamacare cuts to Medicare include: $260 billion in payments to hospitals, $66 billion for home health services, $39 billion for skilled nursing and $17 billion for Hospice. Obamacare also squeezed $156 billion from the Medicare Advantage program, popular among seniors.

A sidebar. It is important to note that these changes are not “net reductions.” They are simply cuts in the rate of growth of Medicare. This journal has long found it contemptible when Democrats excoriate GOP budget proposals for perceived “massive cuts,” when in fact, the proposals are designed only to slow the increase in spending. This is “inside baseball” in DC that serves only to confuse voters who aren’t familiar with the nuances of budget language in the nation’s capital that is often manipulated for partisan gain.

To that end, Romney-Ryan attacks on the Obama Medicare reductions are little better than Democratic critiques of Republican budgets.

That said, there is one enormous caveat, that is key to the whole debate.

Instead of slowing growth in Medicare to “save” Medicare, the Obama reductions are budgeting tool to pay for the cost of Obamacare writ large, including expansion to cover the uninsured. Said a different way, but for the changes in Medicare spending, there is no way that Obamacare can be deficit neutral. Whether the savings are captured rhetorically as “slower growth” or a “cut” the result is the same – the savings are being used to subsidize the rest of Obamacare.

That should make seniors pretty angry. The Democrats are essentially balancing the books of an expanded health care mandate on the backs of a program for seniors.

Team Obama is correct when it says that its savings in Medicare “do not cut a single guaranteed Medicare benefit.” However, it does arbitrarily reduce Medicare payments to doctors and hospitals without an financial alternative for those institutions and medical professionals if the capped payments don’t reflect market costs.

There is another word for that – rationing – and it has a significant, longer-term impact.

For instance, Richard Foster, the Medicare actuary estimates that the squeeze on payments to hospitals will cause one in six hospitals to become unprofitable, putting them at risk of closing, as the wedge between costs and benefits widens over time with the addition of 30 million newly insured patients. Indeed, John Goodman, writing in the Wall Street Journal, noted that Obamacare’s coverage expansion will not be accompanied by an increase in the supply of doctors. With lower reimbursements rates for the same Medicare paperwork headache, who will doctors see? That doesn’t require an advanced degree to figure out.

Democrats, either by accident or design, have essentially undermined their own credibility by financing Obamacare on the backs of seniors and Medicare. Democrats are suddenly vulnerable as they never have been in the past.

With that as a preface, what is it that Paul Ryan is proposing?

First, and most importantly, Ryan’s plan does not affect anyone currently on Medicare or anyone who will be going on Medicare in the next ten years. That is crucial, as Democratic attack ads literally have seniors being thrown under the bus as if it were to happen immediately.

Ryan’s plan only affects those who are 55 and younger. This is in contrast to Obama’s Medicare austerity, which kicks in beginning next year.

The essence of Ryan’s plan is that market competition is the most effective way to control costs, and that beneficiaries should have maximum choice to design the plans that will provide best for their specific needs. This serves as an alternative to Team Obama’s approach, where an independent advisory board essentially – and artificially – mandates prices, creating government sponsored scarcity.

Ryan’s plan implements the concept of “premium support.” This is the hotly demagoguged by Democrats who insist that the change signals the end of Medicare. Of course, irony abounds. “Premium support” owes its origins in part to prominent Democrats.

Former Majority Leader Richard Gephardt pushed “premium support” while in Congress in the 90s. Also during the 90s, leaders at both Brookings the Urban Institute – both firmly in the progressive Left – were chief advocates. Interestingly, President Clinton’s 17 member Medicare Commission endorsed “premium support” in 1999.

But since Ryan has come on the scene, and actually pushed his plan into a working document, the Democratic reaction has bordered on hysteria. No less an authority than POTUS himself called premium support “social Darwinism.”

To eliminate potential bias, here is Ryan’s plan, in his own words, for you to assess:

For those workers currently under the age of 55, beginning in 2023, those seniors would be given a choice of private plans competing alongside the traditional fee-for-service option on a newly created Medicare Exchange. Medicare would provide a premium-support payment either to pay for or offset the premium of the plan chosen by the senior. The Medicare Exchange would provide seniors with a competitive marketplace where they could choose a plan the same way members of Congress do.

All plans, including the traditional fee‐for-service option, would participate in an annual competitive bidding process to determine
the dollar amount of the federal contribution seniors would use to purchase the coverage that best serves their medical needs. Health care plans would compete for the right to serve Medicare beneficiaries.

The second–‐least expensive approved plan or fee-for-service Medicare, whichever is least expensive, would establish the benchmark that determines the premium-support amount for the plan chosen by the senior. If a senior chose a costlier plan than the benchmark plan, he or she would be responsible for paying the difference between the premium subsidy and the monthly premium. Conversely, if that senior chose a plan that cost less than the benchmark, he or she would be given a rebate for the difference.

Payments to plans would be risk-adjusted and geographically rated. Private Health plans would be required to cover at least the actuarial equivalent of the benefit package provided by fee-for-service Medicare.”

Under the plan, premium support payments would start at $15,000 (the amount that Medicare currently spends per person), indexed to inflation. The poor would receive subsidies to pay for coverage, while wealthier recipients would pay more. No senior could be denied coverage for pre-existing conditions.

Democratic criticism of the plan centers on the potential for costs to exceed benefits, placing the increased financial burden on seniors. But the Ryan plan relies on competition among Medicare plan providers to control costs. There is already existing evidence that such a program works.

In 2003, Congress structured Medicare’s prescription drug benefit by using the premium support concept. Though more seniors signed up for the program than originally envisioned, and used it more than expected, the CBO has stated that the ten-year cost of the program will be 43% less than it had estimated in 2004. Nearly half off while maintaining quality and an expanded pool of applicants.

Competition – not arbitrary, government-mandated caps – are the key to providing flexible, customer-centric products and service at a reasonable cost.

So there you have it.

One plan squeezes Medicare to pay for the national miasma that is Obamacare, arbitrarily capping Medicare services in a way that eventually impacts access to health care for seniors. The other preserves Medicare for seniors today and for those entering the system over the next ten years, then transitions to a system that provides for quality and choice, and controls costs through competition, not government mandates.

And this inevitably plays into the larger debate on health care.

When Mitt Romney states that he wants to repeal Obamacare and “restore” funding to Medicare, the two goals are not mutually exclusive, but actually mutually reinforcing. At the request of Speaker John Boehner, CBO analyzed the budget impact of the repeal of Obamacare. The analysis specifically stipulates that after the repeal of Obamacare, more than $700 billion in funding would return to Medicare.

In a manic effort to nationalize health care within patently unrealistic budget parameters, the Democrats have created a health care structure that undermines programs critical to their core political constituencies (seniors) while degrading overall coverage and care for the wider pool of citizens subjected to Obamacare’s mandates, waivers and price-fixing.

In pointing out the contradictions of Obamacare and Medicare, and with Ryan’s plan as a credible alternative, Romney-Ryan may just have found a way to turn a core Democratic advantage against the President and his Party. It is increasingly clear in the days since the VP selection that this wasn’t an accident.

Good on you, Mitt Romney.

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