Medicare Needs a Better Fix Than Ryan's

By Chris Farrell

Are you confused about the future of Medicare?

Everyone knows that Medicare reform is critical for bringing the federal government's long-term structural debt and deficit into better balance. Yet during the months leading up to the March 2010 signing by President Obama of his signature health care reform bill—the Patient Protection and Affordable Care Act—Republicans assailed it for planned cutbacks in projected Medicare spending that totaled almost $500 billion. Former Republican National Committee Chairman Michael Steele called for a senior bills of rights in the Washington Post on Aug. 24, 2009, that would "protect Medicare and not cut it in the name of 'health-insurance reform.'" Republicans have now lined up behind Representative Paul Ryan's (R-Wis.) proposal that dramatically slashes Medicare spending even more for anyone under age 55.

Say what? No wonder many people are confused. To cut through the claims and counterclaims, examine a statement Ryan has made repeatedly. In his Pathway to Prosperity booklet, Ryan describes his plan for Medicare this way: "Starting in 2022, new Medicare beneficiaries will be enrolled in the same kind of health-care program that members of Congress enjoy." Sounds good, right? The thing is, there is but a surface resemblance. The differences are crucial and illustrate why his plan isn't reform.

In essence, under the Ryan plan Medicare recipients in 2022 would get a "premium subsidy" paid directly to a health plan of their choosing. The value of the subsidy would increase at the rate of the consumer price index; the Congressional Budget Office estimates the subsidy would be worth $8,000 initially. The yields on Treasury Inflation Protected Securities signal that investors expect consumer price inflation to average a bit over 2 percent over the next 30 years. Medicare per capita spending rose at an average annual rate of 6.7 percent between 1985 and 2009. The "cost" savings on Medicare come largely from older folks dipping deeper into their pockets and the government picking up less of the Medicare tab.

The federal government pays two-thirds of the health-care premium tab for members of Congress. (The current salary in Congress is $174,000 vs. a median income of $21,000 for Medicare beneficiaries.) The Kaiser Family Foundation estimates that the Medicare program would pay 58 percent of the tab for the typical 65-year-old in 2022, while under the Ryan plan the percentage shrinks to 39 percent. Even more striking, the out-of-pocket cost under Ryan's proposal for the typical 65-year-old would be more than twice as large as with traditional Medicare—$12,500 vs. $5,630. The reason for the large gap is that the cost of providing benefits is greater with a private insurance system than under traditional Medicare. Private plans have higher administrative costs and historically pay higher fees to providers than traditional Medicare.

These numbers alone say the cost-shifting embedded in the Ryan plan is unrealistic and the comparison to the health-care plan of Congress misleading.

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The U.S. Needs a Jobs Agenda Now

By Frank Aquila

In 1992 a relatively unknown Arkansas governor beat an incumbent President who a year earlier had been riding high in the polls after a huge victory in the First Gulf War. Unexpectedly, Bill Clinton was able to come from almost nowhere to oust a sitting President by focusing like a laser on one issue. Clinton's campaign message was as compelling as it was simple: "It's the economy, stupid" is a phrase that is now virtually synonymous with that 1992 campaign. As the 2012 Presidential race begins in earnest, the lessons of the 1992 campaign should be understood by President Barack Obama and each of his potential rivals.

Today, as the U.S. recovers from the worst recession since World War II and the global economy continues to absorb the effects of the financial crisis, America has a long-term, potentially intractable problem: How will the U.S. create the millions of jobs needed to reinvigorate our consumer-driven economy? The candidate that can best articulate a program for significant and sustained job creation will likely win the White House on Nov. 6, 2012.

While every candidate speaks about the need to create new jobs, few actually propose ideas that would create jobs now, as well as allow job creation that will ensure American prosperity for the next generation. In case any candidates are looking for ideas, here are a few:

• Eliminate burdensome regulation. Regulate where and when needed, but eliminate those regulations that limit positive economic growth. According to a recent study by the U.S. Small Business Administration, the cost of regulation equates to $10,585 per employee each year for a small business and approximately $7,500 per employee for larger businesses. Declare a 90-day freeze on new government regulations and then require federal agencies to streamline regulation.

• Reform the tax code. Only on Washington's K Street, the center of the lobbying universe, is the U.S. tax code viewed as a thing of beauty. Beyond the lobbyists and special interests, the U.S. tax code has become a web of deductions and rules and regulations that conspire to thwart economic growth and limit job creation. Business and individuals both would welcome flatter rates and fewer deductions. Tax reform that brought lower nominal rates and fewer deductions would promote rational financial decisionmaking. And allowing businesses to repatriate their foreign profits without incurring U.S. tax would allow them to bring those funds back to the U.S.

• Increase H-1B visas. Many industries continue to need highly skilled workers, who are essential to economic growth. In today's global economy, the U.S. must compete fiercely for the world's best and most talented workers. America needs to revamp the H-1B visa program to ensure that the most talented scientists and highly skilled professionals are able to come to the United States when they have the skills that American companies need to grow and prosper.

• Tax credits for jobs. Employers should receive additional tax credits for creating new jobs. A temporary federal tax credit would give businesses added incentive to create new jobs. While such a tax credit would reduce federal revenues in the short run, the economic growth generated by the new workers would eventually more than make up for any lost tax revenue.

• Cut the deficit while investing in growth. Cutting the size of government, eliminating waste, and making government more efficient must be the focus of efforts to shrink the federal deficit. While cutting government waste must be a priority, the federal government must use its limited resources to fund programs that promote growth. Discretionary government spending should be focused on education, research and development, building critical national infrastructure, and other projects that promote growth and create national wealth.

• Focus on trade. With 75 percent of the global economy and almost 90 percent of anticipated economic growth coming from beyond our borders, expanding the U.S.'s share of global trade must be a priority. Expanding trade not only helps U.S. companies, it helps American workers. Nearly one-third of American workers are employed by multinational companies or by one of their suppliers.

• Raise the debt ceiling. All efforts to exploit the debate over the U.S. debt ceiling—now and in the future—must be eliminated. Cut the deficit or raise taxes, but playing with the full faith and credit of the United States will only undermine the country's position in the global economy. Uncertainty over whether the U.S. could default on its obligations will hurt American business and lead to less, rather than more, job creation.

This is clearly not an agenda designed to satisfy the partisan demands of either the left or the right. It is not a Republican agenda or a Democratic agenda. It is a jobs agenda. For those Americans who are unemployed or looking forward anxiously to graduation, only a jobs agenda will do.

Aquila is a partner in the Mergers & Acquisitions Group of Sullivan & Cromwell LLP.

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