Here’s what Representative Paul Ryan of Wisconsin—the GOP’s leading economic wonk—is afraid of: First, the Great Reckoning finally arrives and America is engulfed by a sovereign debt crisis like the one currently blazing in Europe. Second, Washington’s response to such terrible turmoil—whether an embrace of higher taxes or inflationary money printing or both—makes the problem even worse and puts the Greatest Nation on Earth on a path of irreversible decline and irrelevance. Welcome to the Chinese Century.

It is in this context that Ryan’s new Medicare reform plan, co-authored by Senator Ron Wyden, an Oregon Democrat, must be viewed and evaluated. The proposal’s biggest economic and budgetary flaw—at least in the eyes of many economic conservatives—is that it fails to dismantle Medicare. Instead, Medicare would stick around and compete with subsidized private insurance plans for the health dollars of America’s seniors.

Red alert! Surely the manager of this system of managed competition—the Washington bureaucracy—would press its thumb on the scale in favor of Medicare, yes?

This is not a minor quibble. Indeed, Ryan’s original reform plan would have continued Medicare for current retirees and older workers only, certainly a preferable scenario since it is Medicare’s government monopoly that imperils America’s fiscal future.

But here is how I see things:

1. Under Wyden-Ryan, the true regulator isn’t Washington but Mr. Market. Seniors, having received a fixed amount of premium support, would choose among traditional Medicare and private plans competitively bidding with each other to provide the same package of benefits. The federal contribution to the cost-of-coverage for each senior would be benchmarked annually and regionally to the second-least expensive approved plan or fee-for-service Medicare, whichever is least expensive. Seniors that choose costlier plans would have to make up the difference. If they choose a cheaper plan, they would get a rebate for the difference.

It is a) the competitive bidding process and b) the cost transparency for seniors that would force the Medicare fee-for-service option to controls costs and maintain quality—or lose out to private options.

2. If you believe in the power of markets, competition, and choice to power innovation and productivity, then you need to support the direction Wyden-Ryan would take the system. While the plan does contain a spending cap, it exists only so the Congressional Budget Office can score the plan—the benefits of competition do not compute with the CBO—and to reassure credit markets that there is budgetary backstop.

3. And let’s be honest, any Medicare reform plan that starts out by dismantling Medicare for future retirees would be a non-starter with Democrats, just as nationalizing healthcare for current workers is a non-starter for Republicans today. Ryan and Wyden have created a plan that might actually make it into law and create a sustainable financial structure for Medicare—without massive tax increases or government rationing. Mitt Romney nailed it in last night’s Republican presidential debate when he called Wyden-Ryan plan “good news” and a “big day for our kids and grandkids” because the plan deals with America’s exploding debt, which has the “potential of crushing our future generations.”

4. Passage of Wyden-Ryan might prevent the Great Reckoning from happening. And if fiscal reform stalls and a debt crisis does occur, the plan would give Washington policymakers something to reach for besides a massive tax increase.