Everyone knows Medicare needs to be set on a sustainable course, but partisan exchanges about how to achieve that have become increasingly sharp. This election season, Republicans have accused President Obama of cutting Medicare, while Democrats have accused Republicans of intending to end Medicare altogether. The rhetoric heated up further when Republican presidential aspirant Mitt Romney chose Congressman Paul Ryan as his running mate. Ryan is known to favor Medicare “vouchers,” with which he contends seniors could shop around for private insurance, as a remedy for Medicare’s presumed unaffordability. Democratic figures charged that vouchers would “end Medicare as we know it,” and New York Times columnist Paul Krugman has dubbed Ryan’s ideas “Vouchercare.” So what’s the truth of the matter? Is Medicare really unsustainably expensive—and are vouchers a viable means of addressing its fiscal challenges?

Before diving into the fray, let’s first briefly lay out how Medicare works. Medicare has four “parts”: A, B, C, and D. Part A provides hospital insurance, using social insurance methods to finance the program—i.e. taxes on wages and salaries. Part B provides physician insurance, drawing on federal taxes and premiums paid by seniors, the disabled, and those requiring kidney dialysis. Part C, introduced in 1997, allows Medicare beneficiaries to receive their benefits through private insurance plans. Under Part C, beneficiaries can enroll in “Advantage” programs, which initially were set up for group practices that combined the financing and delivery of care in one organization. Part D, enacted in 2003, covers the costs of some prescription drugs.

Since 1966, Medicare has expanded in enrollment, complexity, and costs. Medicare’s overall outlays will only increase, but for two quite different reasons. The first is demographics. The proportion of the US population over 65 is expected to rise by 50 percent between 2010 and 2030, and the proportion of those under 65 will necessarily shrink. An even higher percentage of Americans will therefore shift from private insurance to Medicare, which prompts dark warnings from those who oppose any growth of government. For defenders of Medicare, the fact that the country will have more seniors to cover simply requires increases in Medicare’s revenues and expenditures balanced by lower expenditures elsewhere for healthcare coverage.

The second reason Medicare’s outlays can be expected to increase is that per-capita costs of medical care in the United States have vastly outpaced inflation. The U.S. spent 7 percent of national income on medical care in 1970; today it spends roughly 18 percent of a much larger national income. Overall medical care inflation, reflected in increasing per person costs, is an indisputable national problem, crowding out all other spending, public or private.

This is where Paul Ryan and vouchers come in. Vouchers are fixed sums of money that can be spent only for a specified, limited purpose. Ryan’s idea is to give Medicare beneficiaries vouchers with which to buy health insurance on the private market. Instead of serving as a direct insurance provider, the federal government would provide each Medicare beneficiary with some fixed dollar amount—say, $10,000 a year—that he or she could use to shop around for different health plans.

Supporters of this idea see several advantages to it. The first is that the federal government would have a limited annual budget instead of an open-ended commitment to pay for as much care as its beneficiaries receive. Medicare’s budget would become a matter of much simpler arithmetic: the average voucher amount, set by Congress, times the number of beneficiaries. The second benefit, supporters say, is that vouchers would help contain medical inflation, because the government wouldn’t write blank checks to healthcare providers but instead allocate fixed sums that would cover health-insurance premiums paid to private insurers. The resulting competition among insurers would not only restrain healthcare inflation but also, thanks to lower federal outlays, help to reduce the federal deficit.

To see how Ryan’s plan might look in an ideal world, imagine Fred, age 70, who has $10,000 with which to purchase health insurance. He can choose a plan from Aetna or Kaiser or Cigna, each plan with different benefits and limits. His choices would, in short, be much like those most people under 65 have today. While healthcare costs would be substantially covered, there would be no blank check. All of Medicare’s beneficiaries—people like Fred—would be active consumers, using their vouchers to select the firms that respond to their demands. Because insurance firms would compete for customers on price and quality, the rate of medical inflation would go down.

But that’s in an ideal world. For all the superficial attractiveness of medical vouchers, they come with many problems. For one thing, Fred might be in poor health. Maybe he has diabetes and prostate cancer, and he needs extensive medical attention. No insurance firm in the free market would want to cover Fred, when it could instead take on Bill, age 66, fit and healthy and still playing tennis. To prevent such discrimination, insurers would have to be subject to regulations that would set minimum standards for care and ban discrimination against unhealthy customers. Or else Medicare would have to adjust the voucher sum to the risks of different patients, a task that would be hugely costly and administratively complex. Another problem is that if medical inflation were to increase faster than the value of the voucher in the years to come, Joe’s voucher would buy less and less health coverage and his out-of-pocket costs would increase.

If vouchers would provide enough money to purchase basic Medicare coverage for everyone, there would be nothing objectionable to them in principle. Indeed, beneficiaries enrolled in Medicare Part C, the Medicare Advantage program, already enjoy an analogous arrangement, with Medicare sending payment directly to the beneficiary’s insurance provider. But the history of Part C doesn’t offer much encouragement when it comes to cost savings. Average expenses for those in the Medicare Advantage program have been 10 to 15 percent higher than those for comparable seniors in traditional Medicare. Competition for customers seems to have inflated rather than reduced costs.

Supporters of vouchers also point out that some European countries employ a voucher system, notably Holland (since 2006) and Switzerland (since 1996). Both countries introduced universal health insurance mandates under the banner of “managed competition,” and Dutch and Swiss citizens could use the equivalent of a voucher to select insurance plans. However, while the control of medical inflation was the announced goal, the experiment did not work out that way. Medical inflation increased in both countries.

In sum, the voucher system, as closer examination reveals, would not control medical inflation, simplify administrative complexity, or secure uninterrupted and stable economic protection. That raises the question of why it has become so central to reform efforts by Paul Ryan and his allies. I suspect that the dispute is fundamentally philosophical rather than actuarial. If your view of the proper role of government is far more limited than that of Roosevelt’s New Deal, Truman’s Fair Deal, or Johnson’s Great Society, then you look wherever possible to cede leadership to the marketplace. In short, we are back to the struggles that divided Franklin Roosevelt from Herbert Hoover; Harry Truman from Thomas Dewey; Lyndon Johnson from Barry Goldwater.

A telling example of the divide emerged last spring with a proposal by Senators Tom Coburn (R-OK) and Joe Lieberman (I-CT) to raise the age of Medicare eligibility from 65 to 67. As the Kaiser Foundation pointed out, that would trim expected annual federal expenses by $7 billion per year, but it would also increase total actual annual outlays for those over 65 by $10 billion dollars. In short, the “reform” just shifts costs to the elderly and their private insurance and does nothing to stem medical inflation.

A more defensible proposal for reforming Medicare would begin by reasserting its fundamental social insurance aims: protecting elderly Americans and their families from the costs of medical care, financing healthcare from reliable sources, and providing a common benefit that treats seniors with similar ailments similarly. The pressure of an increased number of senior citizens means that more of our collective funding must be spent on their coverage, but this need not be a crisis. Between 1980 and 2000, the countries of northern Europe—Norway, Sweden, Germany—experienced an increase in their elderly populations comparable to what the United States will face between 2010 and 2030. None of these nations had to transform their national health systems to cope with the demographic changes. What all of them did have to do was hold their medical care systems to a budget, with annual negotiations to adjust agreements and keep healthcare affordable. That’s simple to say and hard to do. But the sooner we start doing it, the better.

Ted Marmor is professor emeritus of politics and public policy at Yale. His most recent book, with Rudolf Klein, is Politics, Health and Health Care.

*Photo courtesy of Gage Skidmore.

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We hear so much about presidential candidates–and so little about life in the states that elect them. In “Beyond the Circus,” writers take us off the trail and give us glimpses of politically important places. Today, Janesville.

In his speech to the Republican National Convention, Paul Ryan portrayed himself as an emblem of his Midwestern hometown, where he lives on the same block where he grew up and attends the same church in which he was baptized.

I have lived in Ryan’s hometown–Janesville, Wisconsin–off and on for the past 20 years, and have learned that its story is more complicated, and more important, than that.

Janesville is a city of about 63,000 located 40 miles south of Madison. In addition to its outstanding public library, lush Rotary Gardens, and plethora of historically significant domiciles, Janesville has so many retail outlets (two huge malls) and restaurant franchises that people call it “Chainsville.” The city is a merchandise center for the surrounding area–over half a million people live within 30 minutes. It also is a Rust Belt town that, not unlike the United States, is slouching toward some sort of reinvention. But let us not get ahead of our story.

Janesville is a fine specimen of American history, and this isn’t its first brush with presidential politics. Abraham Lincoln stopped here twice, first when he was a young man helping to clear out the Blackhawk Indians so that white settlers could develop the Rock River for commerce; and later when he was unofficially running for president in opposition to the further spread of slavery. Then he stayed for a single night at an Italian villa newly built by a lawyer named Tallman; it is now called the Lincoln-Tallman House and stands, albeit in need of repairs, next to the Rock County Historical Society. Tourists still stop by the Lincoln-Tallman house, but fewer than used to.

Many weddings in American family history have been enhanced by “I Love You Truly,” a tremolo paean to love written by Carrie Jacobs-Bond, originally from Janesville. And what would we do without the spirited aphorism “Laugh and the world laughs with you, Weep and you weep alone,” penned by Ellen Wheeler Wilcox, also from Janesville?

One in five of the Wisconsin houses on the National Register of Historic Places rest on their foundational laurels in Janesville. There are 10 different historical neighborhoods, of which my family has lived in two. Courthouse Hill has one of the best collections of Gilded Age homes in the United States. Our current historic district, Columbus Circle, is chock-a-block with 1920s bungalows of almost every conceivable form: Tudor, Dutch Colonial Revival, Mediterranean, Cape Cod, and Prairie Style.

As for Native American history, the most recent major event since the Blackhawk War of the 1830s was the birth of “Miracle,” a white buffalo accorded wondrous status by Native American tribes, who gathered in droves at a farm just west of town to behold him. Miracle lived from 1994 to 2004. “Second Miracle” was born in 2006 but was felled by lightning at an early age.

Parker Pen Company, once the largest maker of writing instruments in the world, used to be a big employer here, but a consortium bought and downsized it two decades ago. Now, if you want a Parker Pen in Janesville, you go to Staples. The old Janesville Machine Company, which in 1919 was bought by General Motors and merged with the Samson Tractor Company, was the oldest General Motors assembly plant in North America until GM closed the plant for good in 2008.

In my old hometown of Waco, Texas, residents long believed that no tornado would ever strike the city (it was an old Huaco Indian legend). They were accurate until 1953, when true believers failed to heed storm warnings and became victims of one of the worst storms in American history. Janesville had a similar type of magical thinking: “GM will never close. They’ve been talking about it for years. But it just never does.” Well, it did.

General Motors was once the biggest purely commercial employer in town. Now Wal-Mart is. Workers making $29 an hour left Janesville or switched to jobs that paid $8.50 an hour; or they retired early with much less money; or they decided they could never afford to retire. Some lost everything. Janesville had been a GM town. It had also been a union town.

What followed this debacle–when GM closed, a lot of other, allied companies shut their doors, too–was what documentary filmmaker Brad Lichtenstein, director of the forthcoming As Goes Janesville, has called a “golden moment” of cooperation. Democrats and Republicans, labor union members and bankers: all came together to see what could be done. They tried to get GM to change its mind (it has not), and they tried to get ownership of the abandoned facility (they never have), and they tried to attract new business (with some success). Janesville is strategically located in reasonable proximity to Chicago, Milwaukee, St. Louis, Des Moines, and Minneapolis. Interstate 90 sweeps along just east of the city. Already, there are signs that Janesville is attracting distribution centers. These jobs do not pay as well as “Generous Motors” did, but there are other promising shoots in the garden, such as a coming manufacturer of isotopes for cancer treatment. But can Janesville re-cast itself as a high-tech city in a region far removed in every way from Silicon Valley?

Whatever results from the “golden” collaboration of which Lichtenstein spoke, Janesville embodies much of what has divided America in the early 21st century.

It is the hometown of ex-Senator Russ Feingold, famed for his attempts to limit the influence of big donors over regulatory policy and to slow American military adventures overseas. Feingold is the latest incarnation of Wisconsin Progressivism, rooted in the community-minded reform movements imported from Germany and Scandinavia. But Janesville is also hometown to Paul Ryan, who comes from a different tradition: that of the entrepreneur who starts a business (for example, Ryan Construction, founded by Paul’s forebears). The entrepreneur prefers to have as few taxes and regulations as possible.

The Wisconsin progressive yearns for the middle-class security once guaranteed by high-paying union jobs, often held by those with no more than a high school education. The entrepreneur envisions a more “dynamic” America, one fueled by the risk-taking of entrepreneurs, free of the demands imposed by collective bargaining.

These competing visions have come to a head in disputes such as that between Wisconsin’s conservative governor, Scott Walker, and his bitter foes, the public employee unions. They have also created a rift, after the closure of the GM plant, between those who believe prosperity is founded on protected jobs and those who are glad the United Auto Workers are gone. Janesville is a place where the profound dislocations of globalization and outsourcing are on painful display.

A decade ago I happened to be in one of the city’s two big shopping malls at a chain eatery called “The Old Country Buffet.” A 50-something GM worker, wearing a pants suit, had just finished a hard week of work. But it was payday, she had her grandkids with her, and they were delighted to be eating all of the pork chops and banana pudding they wanted on a Friday night. Such comfort and assurance, after so much hard work, seemed deeply right to me. Today in Janesville, that seems like a time that may never come again. But these days, it also feels like a new chapter is aching to be born.

Tom McBride is a professor of English at Beloit College, and coauthor, with Ron Nief, of the Annual Mindset List and The Mindset Lists of American History (Wiley, 2011).

*Photo courtesy of cliff1066.

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