Bloomberg News

Health Care Reveals Daylight Between Ryan, Romney

August 12, 2012

When Paul Ryan was simply the Republican Party’s leading light on health-care policy, having Mitt Romney say nice things about Ryan’s ideas must have seemed obvious. Now that Ryan is Romney’s running mate, the two have some differences to sort out.

The first thing for Romney and Ryan to resolve is what to do with the $500 billion reduction in Medicare spending included in President Barack Obama’s 2010 health-care overhaul. Romney would reverse those payment reductions along with the rest of the law, his campaign told Bloomberg Government.

By contrast, Ryan’s latest budget proposal calls for maintaining those cuts and redirecting the savings into the Medicare trust fund. “Our budget keeps that money for Medicare, to extend its solvency,” Ryan said in July.

Promising to undo the Medicare cuts may be good politics. Republicans used those cuts to help win back the House of Representatives in 2010, and Romney has cited the $500 billion number on the stump. Pledging now to keep those cuts would be an awkward policy reversal, especially for a man who can ill afford more of them.

Even so, keeping the cuts may be important for Romney and Ryan, from a budget perspective. Both men’s Medicare proposals rely on vouchers to save money, but those vouchers won’t begin to be used for 10 years, and initially only for a small slice of the program’s beneficiaries.

If the 2010 cuts were reversed, Romney would need to replace them or see the fiscal soundness of Medicare deteriorate during his tenure.

Vouchers

Another issue for the two men to work out is what, exactly, to do about Medicare in the long run. Before the Republicans took the House in 2010, Ryan had proposed replacing Medicare with a system of vouchers, or “premium support payments,” which future beneficiaries could use to buy private insurance. The approach would reduce federal spending because the value of the vouchers would increase more gradually than projected Medicare costs.

Ryan has continued to advocate for Medicare vouchers, gradually winning over his party.

In Romney’s campaign platform “Believe in America,” released last September, he wrote that while Ryan’s Medicare plan “makes important strides in the right direction,” his own plan will “differ.” Romney didn’t say what the differences would be, but noticeably absent from the platform’s language on Medicare was any mention of vouchers or premium support payments.

By November, Romney’s hesitations about Medicare vouchers seemed to vanish. He announced a plan to give future Medicare beneficiaries a choice: they could stay on the current program or take vouchers for private insurance. There was only one catch: If the cost of traditional Medicare went up faster than that of private plans, beneficiaries would pay the difference in higher premiums.

Ryan’s latest budget proposal echoes Romney’s proposal, with one important difference: It comes with a stick attached. If competition among private insurers fails to keep cost growth below the nominal gross domestic product plus 0.5 percentage points, Ryan’s plan would impose a hard cap at that level.

Romney’s plan, which is otherwise described in some detail on his website, makes no mention of a hard cap on spending growth, or what that cap would be. Ryan will want to ensure that Romney’s recent conversion to vouchers is both fiscally meaningful and likely to last beyond the election.

Employer Health Insurance

Finally, Romney and Ryan must settle an argument over the tax treatment of employer-sponsored health insurance. To be more precise, Ryan must settle the argument with himself.

Under current law, insurance premiums paid on behalf of employees are exempt from both income and payroll taxes. That policy reduces potential tax revenue; it also drives up health- care spending by reducing the real price of insurance.

In his 2010 budget proposal, Ryan called for repealing the tax exclusion on employer-sponsored insurance and replacing it with an individual tax credit for people to use to buy their own coverage. After Republicans won the House, the proposal to end the tax exclusion stopped appearing in Ryan’s budgets. Perhaps he decided he could only win so many fights at once.

Romney has also avoided talking about the tax exclusion; his campaign told Bloomberg Government that he doesn’t have plans to change the current policy. But if Ryan becomes vice president, he may believe he has the political capital to revisit one of the country’s most expensive, and most distortionary, tax breaks.

Conservative Credentials

Who will win these disagreements is impossible to predict. Even so, Ryan may have the upper hand. Romney’s credentials on health care, at least to Republican eyes, remain suspect, following the universal health care plan he implemented as governor of Massachusetts. That plan, which included a mandate to buy insurance, became the template for Obama’s health care law, something Republicans will never let Romney forget.

Ryan’s conservative credentials in this area are, by contrast, embossed in gold. After winning the support of his party, through years of persistence, it’s hard to imagine Ryan not attempting to win over Mitt Romney on the details. It’s even harder to imagine him not succeeding.

(Christopher Flavelle is a health-care analyst for Bloomberg Government. The views expressed are his own.)

To contact the analyst: Christopher Flavelle in Washington at cflavelle@bloomberg.net

To contact the editor responsible: Kenneth Sands at kjsands@bloomberg.net


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