August 14, 2012


The Forgotten History of Ryan's Medicare Reform : How the House budget chairman developed his premium-support concept, which was originally supported by Democrats. It's the only plan that won't send grandma over a cliff. (JOSEPH RAGO, 8/14/12, WSJ)

Premium support was first proposed by Stanford economist Alain Enthoven in the New England Journal of Medicine in 1978. He observed that the pervasive methods of direct economic regulation of health care did not contain costs and suggested that "managed competition" would do a better job.

'The point," Mr. Enthoven wrote, "is that government has certain limitations that are deeply rooted, if not inherent. Government is good at some things, such as taking money from taxpayers and paying it to social-security beneficiaries, and maintaining competition in many industries; it performs badly at other things." Premium support's "cumulative effect is intended to alter the system radically, but gradually and voluntarily, in the long run."

Mr. Enthoven's reform models were the Federal Employees Health Benefits Program, created in 1959, and Calpers, the California health-insurance program for public employees. He used premium support when he designed the Stanford faculty health plan.

Mr. Enthoven's ideas won some support in the Carter administration. Deregulation czar Alfred Kahn publicly endorsed them. Missouri Democrat Dick Gephardt, of all people, pushed them in Congress.

In the 1990s, premium support's chief advocates were Henry Aaron of the Brookings Institution and Bob Reischauer of the Urban Institute. Neither shop is known as a hatchery for conservative ideology. (Mr. Aaron has since recanted.) President Clinton's 17-member Medicare commission, chaired by Louisiana Democrat John Breaux, endorsed the reform in 1999.

But Mr. Ryan did what a million blue-ribbon panels never could: In late 2010 and 2011, he led an internal struggle to educate and convince the risk-averse Republican caucus to get behind his plan. Newt Gingrich's notorious remark about "right-wing social engineering" gives a flavor of the objections. The main doubters were the careerist old guard.

When Mr. Ryan's ideas had no chance of enactment, liberals praised his sincerity. President Obama lauded "a serious proposal" worthy of "healthy debate" in 2009. When the House GOP dared to include it in their budget, liberals responded with varying degrees of hysteria. Mr. Obama recently savaged premium support as "social Darwinism," and that was the subtle part.

The main objection is that the premium supports wouldn't keep pace with the rising health costs that Medicare now promotes, forcing seniors to pay for the overflow out of pocket. But that assumes doctors and hospitals won't change their behavior when the incentives change.

If they have to pay out of pocket the costs won't rise.
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Posted by at August 14, 2012 2:40 PM

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