Pethokoukis

Whoa! Did Peter Orszag just endorse Paul Ryan’s Medicare reform plan?

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A remarkable statement from former Obama White House budget boss Peter Orszag in an interview with Bloomberg television:

I think what we should be doing is a version of Domenici-Rivlin. … The thing that’s interesting about that is it has a massive, upfront, additional tax cut/stimulus combined with a lot of out-year deficit reduction. That is what we should be doing. … I think it’s the only viable path to getting something enacted.

Released back in 2010, the Domenici-Rivlin plan from the Bipartisan Policy Center aimed to balance the primary budget in 2014 and stabilize the debt below 60% of GDP by 2020.

And as Orszag mentioned, D-R does have a huge dose of sugar stimulus in it. It recommends a full, one-year “payroll tax holiday” excusing employers and employees from paying the 12.4% payroll tax into the Social Security Trust Funds. Using Congressional Budget Office assumptions, D-R think the temporary tax could would create between 2.5 and 7 million new jobs.

What Orszag did not mention — but surely knows — is that D-R would save $756 billion over ten years by reducing spending on Medicare. And here is one big way D-R would accomplish a big chunk of that debt reduction (bold for emphasis):

Much of the long-run cost containment in the plan will come from transitioning Medicare from fee-for-service to a premium support option. This change will have both demand and supply-side effects. Those who elect to stay in traditional Medicare will be more cost-conscious because they will be faced with an additional premium if the costs of traditional Medicare, per beneficiary, rise faster than a specific growth rate (GDP-plus-one percent), giving them a larger incentive to enroll in a plan offered on the Medicare Exchange. Competition among plans on the Medicare Exchange will incentivize plans to manage care-delivery efficiently and to offer the public evidence that their plans achieve quality outcomes at comparatively low cost.

Stop the tape.

Paul Ryan’s Medicare reform plan — much maligned by Orszag’s old boss, President Obama, and congressional Democrats — also envisions transitioning from traditional fee-for-service to premium support. Indeed, Ryan and Rivlin, a Democrat who was Bill Clinton’s budget chief for a time, actually themselves produced a Medicare reform plan that moved Medicare to premium support.

If Orszag is indeed endorsing Ryanesque Medicare reform, it should really come as no surprise. Despite the liberal/Democrat attacks on Ryan’s premium support, it is an idea with blue roots. As Reason’s Peter Suderman wrote recently:

Premium support, which would pay a flat rate toward the purchase of a private insurance plan for each Medicare beneficiary, was first developed by Alain Enthoven, a Democratic adviser who had previously served as a health policy consultant to President Jimmy Carter, in “The History of Principles of Managed Competition” in 1993. In 1995, Henry Aaron, a scholar at Brookings who served as a senior official in President Carter’s Department of Health, Education, and Welfare, gave the policy its name — premium support — and suggested that it represented a Medicare reform compromise, a “middle ground” that could retain Medicare’s strengths but address budgetary challenges. In 1999, the National Bipartisan Commission on the Future of Medicare, which was chaired by Democratic Senator John Breaux and included Democratic Sen. Bob Kerrey, met to develop a proposal to reform the seniors’ health entitlement. The first item in the final proposal put forth by Breaux and supported by Kerrey was “the design of a premium support system.”

It’s time for Democrats to stop demonizing premium support and instead view its adoption as a key way to get a Grand Bargain on the budget. Republicans will never accept tax hikes — and there are some of those in D-R, too — without deep structural changes to entitlements. Not only does D-R support Ryan-style Medicare reform, but it would lower future Social Security spending by raising the retirement age and more accurately adjusted benefits for inflation.

With luck, Orszag’s comments will signal other thinking Dems and liberals to take another look at premium support.

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