Paul Ryan’s Budget

“If Obama’s efforts to create a viable regulatory framework in which individuals can buy private health insurance (a) pass congress, and (b) turn out to work well and be popular, then you can imagine a version of Ryan’s plan being put into place. But in the absence of that kind of reform, I just don’t see how you can do this, which is presumably why the implementation is delayed all the way to 2021 which helps Ryan avoid needing to think about implementation details.” ~ Matt Yglesias, writing about Rep. Paul Ryan’s alternative budget

I think Yglesias actually makes a pretty strong point here.  While I’m overall fairly sympathetic to Ryan’s budget – he does, after all, balance it (at least according to the CBO report [pdf]), something virtually no other politician is willing to even propose – I think there is a fundamental flaw with implementing a healthcare voucher program without first fixing the broken, dysfunctional health insurance market.  The exchanges created in Obamacare would be one way to do this. 

What Yglesias does not point out, however, is that Ryan’s budget proposal also puts an end to the tax exemption for employee benefits.  Simply coupling this tax reform with the ability to purchase insurance across state lines creates an entirely new health insurance market.  Suddenly people on the individual market are given the same tax preference as people who receive their insurance from an employer.  Health insurance drifts away from employers and becomes personal and portable.  People wouldn’t lose coverage when they left their jobs.  Meanwhile, insurers would lose their long-held local and state monopolies and be forced to compete nationally, driving down costs both through added competitive pressures and by the better bargaining powers that these large, national firms would have, with their much larger, national cost-sharing pools.

Of course, the hard questions in healthcare will center around two inextricably linked concepts – pre-existing conditions clauses, and individual mandates.  Almost all modern democracies have some form of universal coverage, and the only way that it has been achieved with any semblance of a free market has been by doing away with pre-existing conditions clauses and implementing some sort of individual mandate.  If the former is done without the latter, nobody would buy insurance until they were sick – defeating the purpose (and the viability) of insurance to begin with.

Other alternatives exist, of course.  My personal preference is a model along the lines of Singapore’s healthcare system, which mandates health savings accounts and then picks up the tab on any costs above a certain flat percentage of income.  This puts healthcare directly in the hands of the consumer (cutting out insurance companies altogether) and provides them with catastrophic coverage if something should go wrong.  Furthermore, by placing costs and transactions directly in the consumers hands, it keeps costs from skyrocketing.  The mandated savings would be flat, but the catastrophic coverage functions progressively, covering less and less as income rises.

Either way, before any privatization of Medicare and Medicaid can occur, the private insurance market must be transformed.  Paul Ryan has shown true grit in crafting a budget that is actually balanced, but the possibility of backlash to cuts in entitlements is very real if the systemic problems in our healthcare system aren’t taken care of first.  Both Yglesias and Ezra Klein see this budget as a sort of draconian rationing of benefits for seniors and poorer Americans. If the insurance market could actually be fixed, however, then the system of vouchers which Ryan proposes would be adequate and possibly even better alternatives to the status quo.

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11 thoughts on “Paul Ryan’s Budget

  1. I think there is an issue with his budget in that he doesn’t say what should be cut, just that there should be caps on spending. That seems to dodge the really hard part. that seems like faux grit.

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  2. “Either way, before any privatization of Medicare and Medicaid can occur, the private insurance market must be transformed. Paul Ryan has shown true grit in crafting a budget that is actually balanced, but the possibility of backlash to cuts in entitlements is very real if the systemic problems in our healthcare system aren’t taken care of first.”

    I am also sympathetic to the idea that Ryan proposes if and only if the current bill passes as you say. I still think there would be a backlash anyway, though. If you thought the demagoguing on the current bill was bad, I can only imagine what it will be like for a proposal like this…

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  3. The response I often hear to selling insurance across state lines, without centralized regulation, is that it would create a race to the bottom in quality of care and regulatory safe-guards as insurance agencies migrated to the states that were most favorable to them. Perhaps from a libertarian stand-point this is a race to the top, but I’m not willing to trust the insurance industry to improve in a generally positive away.

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    • Perhaps Trizz, but the fact remains that some states have enacted really retarded requirements into insurance as the result of lobbying. Do you run a hair implant shop and business is slow? Lobby a bit and suddenly any minimum coverage in your state has to cover hair implants. Wanna guess what that does to the cost of minimum coverage insurance?

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      • Agreed, the argument holds equally in the case of basing minimum coverage on that of any one state, weather it’s the most or the least regulated. But I would hope that the government could establish a balanced minimum. From what I understand, the National Health Insurance Exchange that was in the House bill would do just that – enforce minimum requirements but allow anyone to purchase a plan nationally and without a tax … so I’m a bit confused as to why Mr. Kain is proposing this as an alternative.

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    • If the sales-across-state lines proposal were adopted, the federal government could (interstate commerce) and almost surely would regulate. This is a strong reason why I oppose the idea. It is interesting that Democrats who support a more regulated health care system have been so fixated on their own ideas that they (some at least) appear to have overlooked this opportunity for federal intervention in the market.

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  4. I read in the budget about things called “refundable tax credits,” and I read in descriptions of the proposal by people like Ezra Klein that it involves the privatization of Medicare and Medicaid (and Social Security). Nowhere but here do I read mention of the use of ‘vouchers.’ Is this just referred nomenclature here for some part of the proposal (presumably the tax credits)? What’s with the seeming strong preference for a term that was the subject of much heated debate in other contexts but has largely been jettisoned, even by those proposing such mechanisms (this is obviously kind of neither here nor there; I’m just curious)? Or is there a part of the proposal I have missed (very possible)?

    IN any case, while I also feel a Singapore-like model would have the kind of flexibility to work substantively in this country, I think there is still plenty enough centralized authority in such a to be successfully demagogued by those who find it useful to do so. But maybe Republicans would immune to that (REAL party of health care reform! — you gotta pretend you don’t want it for sixty years, see.). As to the larger budget vision presented by the representative from the 1st district of my state, he does indeed deserve much credit for outlining a stark view of what a balanced U.S. budget looks like, even if the outline calls on no one currently receiving the benefits he calls on to actually experience such cuts. But I still will wait to see what is proposed by those in his party actually responsible for moving legislation when they are in a majority.

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