How Does The 2012 House GOP Budget Measure Up?

House Republicans introduced a budget last week to deal with the country's long-term debt. That GOP plan calls for big tax cuts and a major overhaul of Medicare for future retirees.

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When the President Obama speaks today about the country's long term debt, he'll be offering an alternative to the 2012 budget that House Republican budget introduced last week. The GOP plan calls for big tax cuts and a major overhaul of Medicare for future retirees. NPR's Scott Horsley reports on what the government's own work force shows about how the Republican plan might work.

SCOTT HORSLEY: The GOP budget would leave Medicare as is for people 55 and older. But younger workers would get a different deal when they hit retirement age. Instead of relying on the government to simply pay their medical bills, these workers would get a government subsidy, which Republican Congressman Paul Ryan says they could use to shop around for private health insurance.

Representative PAUL RYAN (Republican, Wisconsin): What we want to do with healthcare is apply those free market principles: choice, competition, transparency on price and quality. That to me is the way to reform healthcare.

HORSLEY: Ryan, who chairs the House Budget Committee, is counting on choice and competition to rein in spiraling healthcare costs. And he didn't have to look far to find a model for his proposed insurance marketplace.

Rep. RYAN: This plan is identical to the system that members of Congress and other federal employees enjoy today.

HORSLEY: Indeed, some eight million federal employees, retirees, and family members get their health insurance this way. The government pays about 70 percent of their premiums, and employees are free to shop around from a wide variety of insurance offerings.

So how has this plan done at controlling health care costs? Over the last two decades, costs in this competitive market have risen faster than in Medicare itself, an average increase of nearly seven percent each year.

Professor UWE REINHARDT (Princeton University): So when Congressman Ryan thinks private insurers, through their competition, will lower total health care expenditure, he must be dreaming. There is zero evidence that that will work.

HORSLEY: Princeton economist Uwe Reinhardt says shopping for healthcare is not like shopping for other goods. Prices are rarely posted. Quality is hard for the lay person to judge. And far from controlling costs, competition among private insurers tends to drive costs up.

Prof. REINHARDT: The more insurance carriers you have competing with one another, the weaker each of them will be in bargaining with the hospitals. If I were a hospital executive or a large medical group, I would just pray that there be lots and lots of insurance companies because then if they want to bargain with me, and I don't like the price that they offer to pay, I say: Take a walk, I can do without you.

HORSLEY: That also poses a challenge for President Obama's healthcare reform, which relies on a similar market of private insurers to lower costs for individuals and small businesses.

In Ryan's plan, the government subsidies for insurance would rise only as fast as inflation. So if insurance premiums keep going up faster, seniors would end up shouldering more and more of the costs themselves.

Tax policy expert Bill Gale of the Brookings Institution says Ryan needs to keep a tight lid on the government's healthcare bills, because he's also calling for big tax cuts.

Mr. BILL GALES (Brookings Institution): Basically what Ryan's doing is saying we're going to make the Bush tax cuts permanent. And because of that, we're going to have much steeper cuts in Medicare and Medicaid than we otherwise would need to.

HORSLEY: But if Ryan's plan relies on unduly rosy assumptions about the future of Medicare, economist Reinhardt says it still serves a useful purpose.

Prof. REINHARDT: I view the Ryan budget like a two by four that smacks us in the face and wakes us up and say we need to have a debate on how to deal with healthcare costs and how to deal with our fiscal deficit.

HORSLEY: The president weighs in with his own plan later today.

Scott Horsley, NPR News, the White House.

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