Morici: Ryan Plan Shows Why Republicans Can't Win Elections

NEW YORK (TheStreet) -- Republicans are losing elections they could win by slavishly clinging to untenable solutions for skyrocketing health-care costs that voters reject.

The House Budget Committee, chaired by Wisconsin Republican Paul Ryan, is drafting a plan to balance the budget in 10 years. That requires lowering the trajectory of Medicaid and Medicare costs, which account for 24% of federal spending.

He proposes offering seniors the choice of a subsidy to buy private insurance or continuing in the existing Medicare system, and giving the states block grants to manage Medicaid.

Conservatives believe seniors could shop for health insurance, as they do for groceries, to drive down prices. The states, freed from excessive federal oversight, could similarly drive down costs.

That's absolute fantasy.

Seniors would confront large insurance companies armed with too little information, and limited choices or monopolies when they purchase drugs and hospital care.

Already, large employers operate in a similar market space -- free to negotiate with health insurance companies -- and even they have not been able to harness rising health insurance premiums.

Granny will not do any better than General Motors ( GM) jawboning Humana ( HUM) and Walgreen ( WAG). Federal Medicare spending could only be cut by providing inadequate subsidies that would require seniors to pay much larger premiums and out-of-pocket costs than they currently bear with traditional Medicare.

Similarly, it is doubtful that the states, acting individually, can do a better job of negotiating reimbursement rates for Medicaid services for the poor than does the federal government. In fact, the Ryan solution could drive up prices because providers could play off states against each other.

The Ryan approaches were incorporated into the 2012 GOP presidential platform and rejected by voters.

If the House budget plan incorporates these approaches, Republican senators will be forced to choose between supporting those or abandoning the House budget in favor of Senate Democrats' plans for higher taxes. That could prove poisonous for Republican senators seeking reelection and House Republicans considering runs for Senate seats.

Sometimes markets don't work. That's why we don't have private fire departments selling subscriptions and taxi fares are regulated in major cities. Every other major industrialized country has given up relying on competition to harness health care costs.

When confronted by those facts, conservatives often point to single-provider systems in Britain where some citizens complain about long lines and inferior care.

Germany has a private provider system quite similar to the one evolving with Obamacare. Everyone has to play and most folks are covered by mandatory government-subsidized, employer-based insurance. However, unlike Obamacare, that system aggressively regulates prices through private-sector consensus building.

Germany caps health-care spending and sets provider prices through a complex system of private-sector negotiations that divide the pie.

Americans spend nearly $10,000 per person on health care while the Germans spend half as much. By most measures, German health care is as good or superior to what Americans receive.

Just like the government doesn't always know best, markets and competition don't always contain costs effectively and provide the best outcomes.

Germans get it but conservative Republicans don't.

Moreover, a German solution, by costing the federal government so much less, streamlining the morass of regulations and reporting requirements, better engaging private providers and reducing federal and state costs, would actually reduce and better limit the bureaucratic burdens insurance companies and government agencies impose on health-care providers.

As long as unbending conservatives like Paul Ryan control Republican thinking on fiscal policy the GOP will not offer solutions to the nation's budget woes that attract popular support, it won't win back the Senate and it faces terrible difficulties winning the presidency.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Professor Peter Morici, of the Robert H. Smith School of Business at the University of Maryland, is a recognized expert on economic policy and international economics. Prior to joining the university, he served as director of the Office of Economics at the U.S. International Trade Commission. He is the author of 18 books and monographs and has published widely in leading public policy and business journals, including the Harvard Business Review and Foreign Policy. Morici has lectured and offered executive programs at more than 100 institutions, including Columbia University, the Harvard Business School and Oxford University. His views are frequently featured on CNN, CBS, BBC, FOX, ABC, CNBC, NPR, NPB and national broadcast networks around the world.

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