A different future

Democrats are running on Mediscare in 2012 and President Obama has all but called the "premium support" reform un-American, if not the decline and fall of Western civilization. That would seem to put the issue in Newt Gingrich's wheelhouse, but the GOP candidate also claimed in a recent interview that the Paul Ryan reform model is "politically impossible" and "suicide." Well, not so fast.

Sen. Ron Wyden and Rep. Ryan have released a bipartisan defined-contribution health-care plan, as the Oregon Democrat and Wisconsin Republican explained in a guest opinion (reprinted in the Mail Tribune Dec. 17). This is an important moment because it shows that the serious entitlement debate is taking place within the camp of choice and incentives, not the Obama status quo.

Wyden-Ryan shares the same architecture as the House budget. It would replace today's open-ended Medicare with a fixed-dollar subsidy for seniors to choose from a menu of private plans. Costs would fall as insurers and providers innovate to compete for patient market share, rather than responding to fee-for-service price controls.

But there are several key changes. Most of the substantive argument turns on how the premium supports should grow over time. Wyden-Ryan would dispose of a predetermined rate — GDP plus 1 percent, medical inflation, etc. — and instead use competitive bidding. Insurers and traditional Medicare, which would remain intact, would essentially participate in a reverse auction and the second lowest bid would set the benchmark for a given region. Seniors would pay at the margin for more expensive options.

As a practical matter, competitive bidding may be an improvement over a set formula because it relies on local information and adjusts with the behavioral and organizational responses that will vary from region to region. Medicare as centrally planned from Washington will never be able to keep pace with the market if subject to the same defined payments. In any case, the growth rate to-and-fro is largely an artifact of the Congressional Budget Office, which has admitted there is a "gap in the toolkit" when predicting market-based savings. It knows this first hand from having grossly overestimated the costs of the 2003 prescription drug benefit.

Wyden and Ryan also sneak in a reform of the larger employer market, which would allow businesses with fewer than 100 workers to move to a defined-contribution model without tax penalties. Wyden has been campaigning for such a reform for years from the Democratic backbenches.

The Oregonian voted for the Affordable Care Act, though his decision to join Ryan is another signal that the entitlement debate is moving in a more promising direction. Variations on defined contribution were also mulled by the "super committee," only to end up on the horns of liberal intransigence.

The brutal math is that Medicare spending has been growing about three percentage points faster every year than the overall economy for the last quarter-century and is now the main driver of the fiscal crisis. Obama has ruled out any structural reforms and his only fallback is the command-and-control technocracy that continues to fail and will ultimately harm patient care. The Wyden-Ryan deal shows that smart liberals prefer a different future.

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