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Home Publications Blogs Beat the Press Ryan Plan Raises Medicare Costs So Much that Reporters Cannot Even Understand It (Never Mind: See Note)

Ryan Plan Raises Medicare Costs So Much that Reporters Cannot Even Understand It (Never Mind: See Note)

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Tuesday, 03 May 2011 16:46

According to the Congressional Budget Office's (CBO) analysis, Representative Paul Ryan's plan for privatizing Medicare would raise the cost to the country (the combined cost to the government and beneficiaries) of providing Medicare equivalent policies by $34 trillion over the program's 75-year planning horizon. This is a number that is so huge that it difficult for many people to understand it.

This number comes to roughly $110,000 for every man, woman, and child in the country. It is almost 7 times as large as the projected shortfall in Social Security that has so many people in Washington terrified.

It turns out that even health care reporters have a difficult time understanding how much the Ryan plan is projected to raise costs. The Kaiser Health News Service told readers that CBO's projections show that the Ryan plan would raise the portion of the health care premium paid by beneficiaries in 2030 from 25 percent to 68 percent.

Actually, those looking at the CBO projections (Figure 1) will see that under the Ryan plan beneficiaries do pay 68 percent of the cost of a Medicare equivalent policy in 2030. They will also see that the baseline projection shows them paying just 25 percent of the cost. Except the figure also shows that the baseline Medicare policy only costs 60 percent as much as the Medicare equivalent policy under the Ryan plan.

This means that to make an apples to apples comparison, we would have to multiply the beneficiary's 25 percent contribution by 60 percent, to get that they would pay 15 percent of the cost of a Medicare equivalent policy under the Ryan plan. While the increase in the beneficiary's contribution reported by Kaiser might have sounded like a huge burden, it actually understates the change. If we use the cost of a Medicare equivalent policy under the Ryan plan as the denominator, the beneficiary's contribution goes from 15 percent under the existing system to 68 percent under the Ryan plan.

 

Addendum:

Actually, looking at this with better eyes, Kaiser did report the CBO numbers correctly. They expressed the beneficiary's contribution under the existing Medicare program as a percent of the cost under a Medicare equivalent policy under the Ryan plan. There was a slight misstatement, since the payment would be 41.7 percent of the cost of the policy to Medicare, but for purposes of the analysis it is appropriate to show the payment as a share of the cost under the Ryan plan so that readers can make an apples to apples to comparison.

The chart accompanying this piece does get the issue confused. According to the CBO analysis, beneficiaries currently pay 39.3 percent of the total cost of a Medicare policy provided through the traditional Medicare system. This would be equal to 35 percent of the cost of a Medicare equivalent plan provided through a privatized system. This shares rises to 68 percent of the cost of a Medicare equivalent plan by 2030.

Comments (3)Add Comment
Are All American Journalists Required to have Failed Mathematics?
written by Paul, May 03, 2011 9:23
Obviously most journalists are not smarter than a 5th grader in basic math, but it seems like failing math must be a prerequisite to get into Journalism School. Most publications, the WaPo for example, would be better off just writing about politics and gossip while ignoring economics completely.
More Skin in the Game Will Correct the Shortage of Providers
written by izzatzo, May 03, 2011 10:35
If we use the cost of a Medicare equivalent policy under the Ryan plan as the denominator, the beneficiary's contribution goes from 15 percent under the existing system to 68 percent under the Ryan plan.


So what? Ryan's plan to increase the co-payment to 68% does the same thing Baker advocates all the time, to correct the shortage of health care providers with more competition and choice.

Let price bypass third parties to face consumers directly, rising to market equilbrium to reflect the true cost of scarce health care resources and resolve the shortage at the same time.

The free ride has to end. Underpayment to the health care sector drives out the best providers which reduces quality from those who remain. In the end everyone loses.

Pay them what they're worth now to correct the shortages created by government price cap regulations. Much less will be paid later if the shortage is corrected now.

The real benefit of Ryan's plan is missed altogether by reporters. When the co-payment reaches 100% there won't be any need for insurance.

Health care providers will be forced to auction off their services to the highest bidders in order to survive the competition under free markets restored by Ryan.
reductio ad hilarium
written by frankenduf, May 04, 2011 8:12
yo izzy- "when the copay reaches 100% there won't be any need for insurance"- dude, that cracked me up :)

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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