The following article published today by our former Director of Office and Budget Management, Peter Orszag, describes his take on what Paul Ryan’s plan would mean for Medicare recipients:

Ryan’s Proposal Would Shrink Medicare’s Doctor Pool

In the article he makes the following arguments:

1. Privatization of Medicare would raise costs considerably.
2. Ryan’s plan would reduce choice for Medicare beneficiaries and cut off their access to doctors.

The level of real-world ignorance it took to come to these conclusions gives us a rare glimpse of how ill-equipped Obama’s economists are at steering our economy.  If you need a visual of the realization, I’ve provided this video to illustrate what has been happening for the last four years:

By no means is Peter Orszag considered a stupid man.  He has a great deal of knowledge the most of us don’t have, much like the child in the video may be able to recite the capitals of all 50 states. Peter received top honors in an economics degree from Princeton and went on to get a PHD in the same subject at the prestigious London School of Economics.  After a life in academia and politics, in 2010 he moved on from the Obama administration to a senior position in Citigroup’s freshly bailed out investment banking division (a poster tip for my OWS friends).  Despite having office walls decorated with really expensive diploma frames, Mr. Orszag has less real world experience than the White Rabbit in Allice in Wonderland… and the hole he has helped lead us into proves it.

Peter starts his argument with a brief history lesson of Ryan’s plan.  His initial claim is that a Ryan’s original plan of privatizing all of Medicare would raise health care costs because the large scale of Medicare gives it better bargaining power with providers than a private health insurance plan.  Lets put aside the simple argument that free market competition has been lowering the cost of all services in all instances for well over 300 years, and get into this one with some detail:

• The first problem with his statement is that he compares a single insurance company to all of Medicare, as opposed to the HUNDREDS of insurance companies that would be competing for the business of that senior citizen.  The collective bargaining power of a national marketplace of insurance companies is at the table in a free market system, not one small company.
• The very characteristics that Peter touts as cost advantages for Medicare –decreased compensation for services compared to private insurance and the low Medicare overhead, are the very reasons why the program is so inefficient and costly.  There is rampant and institutionalized fraud in Medicare claims because there is no “overhead” checking on it.  Insurance companies don’t have 30% overhead or more because they like wasting money. The annoying phone calls doctors and hospitals get from private insurance keep them honest.  The GAO estimated that $1 invested in investigating Medicare prepayment claims would save $21 dollars (your taxpayer dollars!) in improper claims… but the absence of the “profit motive” Peter sneers at in his article means they don’t care about waste. After all, it is not their money they are spending and there are no bonuses for saving yours. The CBO and Peter don’t account for such issues in their analysis, because they have never lived in the real world.  People like them predicted in 1965 that Medicare would cost $9 Billion in 1990 — Actual cost: $67 Billion.  Since then the program has expanded to over $500 billion a year.  The government doesn’t have a record of “just kind of missing” cost estimates.  If the CBO had been put in charge of predicting the size of the Big Bang, God would have been preparing for a universe 10 inches wide.  The government has definitively proven that only private industry can control costs. So how, may you ask, does decreasing the compensation per service increase waste?  Simply put, the doctors need to check more service boxes to make up for the margin they lost.  Since no one is minding the ledger, they can do this completely unhindered.  Would you rather pay for one service with a cost of $100 or two services costing $80 each.  The “two service” approach has been happening on a national level for over 40 years now.  It could not happen in a free market.

The next major point made by Mr. Orszag doesn’t require any real world experience to debunk.  It reads like an IQ test for children trying to get into a good grade school.  He claims that choice will be reduced for the elderly because Medicare beneficiaries will choose to leave Medicare for private plans, and the number of doctors in the Medicare system will decrease, thereby reducing choice.  Let that one sink in for a moment… Yeah, Mr. summa cum laude at Princeton actually wrote that.   It gets better. He goes on to site studies that show that if 50% of seniors leave Medicare, the number of doctors accepting Medicare will go down by 40%…  Again, let that one sink in.  Let’s put it in numbers: If you have 10 doctors per 100 Medicare patients pre-Paul Ryan, that gives you a 1/10 ratio.  Post 50% of Medicare beneficiaries leaving the plan, you now have 6 doctors per 50 Medicare patients. That is a 1.2/10 ratio…. 1.2/10 > 1/10 last time I checked.  There are more doctors per Medicare patient under the doomsday scenario he presents!  Either Mr. Orszag needs to repeat third grade or he believes that the Bloomberg readers tuning in between recess and nap time haven’t gotten there yet…