The problem with the Pawlenty-Gingrich Medicare approach 

In recent days, GOP presidential candidates Newt Gingrich and Tim Pawlenty have distanced themselves from Rep. Paul Ryan's Medicare reform plan.

While Pawlenty has handled the matter much more delicately than Gingrich, to say the least, both candidates  have come out for giving future seniors the option of staying in traditional Medicare. Though it may be seen as a way to thread the needle politically, it's problematic from a policy perspective.

The problem is that allowing future seniors to choose traditional Medicare will significantly reduce the projected savings achieved by the Ryan approach, because a large number of seniors could decide to remain in the traditional system where benefits are too expensive for the nation to afford.

Additionally, it's also important to recognize that the idea of the Ryan plan is not only to reduce government spending, but to contain the growth of health care costs. Critics of the Ryan plan have argued that the purchasing power of its cash subsidy will decline over time because it's set to grow at the rate of general inflation rather than health care inflation, but this need not be the case.

One of Ryan's central ideas is that by putting the money in the hands of individuals and providing them with the incentives to economize, we can reduce the rate of health care inflation, so that the growth rate of the subsidies would be more than adequate. (To fully unleash market forces and see these cost savings would require broader health care reform.)

However, under the Pawlenty-Gingrich approach, if less people moved to the new system, it would mean that the reforms would be a lot less effective in driving down costs.

There could be other ways to compromise. For instance, you could say that starting immediately, every senior could choose between the systems, but that everybody under 40 would move into the new system automatically. That way, it would provide for a longer transition period (the current Ryan plan kicks in for those 54 and under), while still locking in Ryan's long-term savings eventually.

But, without proposing other savings,  it simply isn't fair to give future seniors the opportunity to stay in the current broken Medicare system in perpetuity. Because by giving them that choice, it will necessitate massive tax hikes on the younger generations.

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Philip Klein

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