Obamacare architect Peter Orszag says that Paul Ryan's mistaken belief in the "health care competition tooth fairy" has resulted in a "flawed" Medicare plan.
Orszag, a former budget director for President Obama currently working as Citigroup's vice chairman, told CNBC's "Squawk Box" on Monday that Ryan's plan would not help control health care costs and does not consider that both high-cost and low-cost seniors need to have access to the same health insurance policy to keep health care affordable.
"Health care costs are really concentrated among a very small number of beneficiaries. That's where all the money is," Orszag said. "Paul Ryan's plan is flawed because it just puts all its chips down on believing that competition will reduce costs, and there's no evidence that that actually works."
Ryan supports dismantling Medicare over the long term and moving toward a privately run insurance market, where future retirees receive vouchers to choose from different types of health insurance. But many economists agree that such a system would not reduce health care costs, only shift those costs over to consumers.
"In all these comparisons, we must remember that the goal is to reduce total cost," Orszag wrote in a Bloomberg View column on Monday. "Merely shifting costs across the two categories is not a particularly impressive accomplishment."
Orszag noted in the CNBC interview that the 25 percent most expensive Medicare beneficiaries account for 85 percent of all Medicare costs. Because of that, a privately run health insurance market would not help control health care costs and would raise costs for the most expensive beneficiaries.
Instead, effective reform would focus on constraining the costs surrounding "high-cost cases, chronic conditions, people that are in severe shape," Orszag said. "So the key is why the doctor or hospital is treating this particular condition in this way vs. that way and how we can alter that over time."
"I'm in favor of trying lots of things. My problem with the Ryan plan is it's a mistake to plop all of your chips down on one bet that has not been shown to work in the past."
Clarification: This post has been updated to clarify that Peter Orszag used the term "competition tooth fairy" with specific reference to the health care industry.
Earlier on HuffPost:
National Debt Has Raised Borrowing Costs
Paul Ryan wants you to believe that if the U.S. does not tackle the national debt now, investors are going to demand excessive interest rates, and we are going to spiral toward default -- just like Greece. But many economists argue otherwise. That's because <a href="http://www.huffingtonpost.com/2012/08/03/government-employment-recovery-_n_1737915.html" target="_hplink">U.S. borrowing costs</a> are at <a href="http://krugman.blogs.nytimes.com/2012/07/27/speaking-of-getting-everything-wrong/" target="_hplink">historic lows</a>, thanks to investors turning to U.S. government bonds as a safe haven. The implication: We can keep borrowing at low rates for now while discussing in a less extreme way how to reduce the national debt over the long term.
Spending Levels Are Unsustainable
Paul Ryan says spending on public investments -- everything from education to infrastructure -- is making the national debt unsustainable. <a href="http://www.huffingtonpost.com/2012/08/13/paul-krugman-paul-ryan_n_1772105.html" target="_hplink">He has proposed</a> slashing all government spending outside of Medicare, Medicaid and Social Security by 70 percent by 2050, according to the <em>Washington Post</em>. But a big reason the national debt has grown so much during the economic down turn is falling tax revenue. Since so many workers now are making less money or are unemployed, they pay less in taxes. The rich also got big tax breaks starting in the Bush administration. As a result, <a href="http://www.usnews.com/debate-club/do-the-rich-pay-their-fair-share-in-taxes/blame-budget-shortfall-on-tax-cuts-for-the-rich" target="_hplink">federal tax revenue</a> now is at its lowest level in half a century. And it's not like the U.S. has been boosting spending on education and public services recently, in fact quite the opposite. More than 220,000 teachers were laid off between 2009 and 2011, according to <a href="http://www.hamiltonproject.org/papers/a_record_decline_in_government_jobs_implications_for_todays_economy_an/" target="_hplink">the Hamilton Project</a>.
We Can Cut Debt And Cut Taxes
According to Paul Ryan, cutting taxes for the rich and corporations would not affect our ability to pay down the national debt at all. <a href="http://www.huffingtonpost.com/2012/08/13/paul-krugman-paul-ryan_n_1772105.html" target="_hplink">He has proposed</a> cutting tax rates for the rich and corporations and eliminating taxes on capital gains, interest, dividends, estates, and corporate income. But during a time of <a href="http://www.huffingtonpost.com/2012/03/05/1-percent-income-inequality_n_1321008.html" target="_hplink">growing income inequality</a>, that would <a href="http://" target="_hplink">deprive the government</a> of <a href="http://www.nytimes.com/2011/08/15/opinion/stop-coddling-the-super-rich.html/" target="_hplink">a key revenue stream</a>. The Bush tax cuts alone <a href="http://www.huffingtonpost.com/peter-s-goodman/in-romneys-america-welfar_b_1761980.html" target="_hplink">have cost the federal government</a> $2.8 trillion so far.
Inflation Is A Major Threat
Paul Ryan thinks inflation is a huge threat to our economy's health, that the Federal Reserve should focus on combating inflation alone, and that <a href="http://www.theatlantic.com/business/archive/2012/08/forget-paul-ryans-budget-his-scariest-idea-is-about-the-federal-reserve/261066/" target="_hplink">we should tie the value of the U.S. dollar</a> to commodity prices. But most economists, even conservative ones, agree that this will do little to help our economy. In the past, the gold standard and an ineffective or nonexistent Federal Reserve have enabled financial and economic calamity, economists have found.
Social Security Is About To Go Broke
Paul Ryan <a href="http://roadmap.republicans.budget.house.gov/news/documentsingle.aspx?DocumentID=211347" target="_hplink">warns of Social Security's "unsustainable growth"</a> in his 2010 "Roadmap for America's Future" and claims that Social Security beneficiaries soon will be forced to face benefit cuts. But as The Huffington Post's Mark Gongloff notes, <a href="http://www.huffingtonpost.com/2012/04/23/seven-and-a-half-things-you-need-to-know_n_1447140.html" target="_hplink">Social Security just needs to get tweaked</a> to ensure that we all will have some income when we grow old.
Medicare Is About To Become Insolvent
Paul Ryan <a href="http://paulryan.house.gov/issues/issue/?IssueID=9969" target="_hplink">writes on his House website</a> that "the deteriorating financial conditions" of Medicare threaten recipients Medicare benefits. But that isn't true. Although Medicare will have to grapple with some long-term financing challenges as the population ages, it is not facing a financing shortfall anytime soon, according to the <a href="http://www.cbpp.org/cms/index.cfm?fa=view&id=3532" target="_hplink">Center on Budget and Policy Priorities</a>. The Affordable Care Act also helped Medicare's financing, according to the CBPP.
Medicaid Spending Is Unsustainable
Medicaid spending, too, is helping make the national debt unsustainable, according to Paul Ryan. That's why he wants to end "Medicaid as we know it," as <a href="http://www.tnr.com/blog/plank/106029/ryan-romney-vp-budget-cuts-medicare-medicaid-voucher-tax-cut" target="_hplink">the <em>New Republic's</em> Jonathan Cohn writes</a>. But <a href="http://www.gao.gov/cghome/chcwg07222005/img11.html" target="_hplink">Medicaid comprises</a> only roughly 8 percent of <a href="http://www.ritholtz.com/blog/2011/07/government-spending-as-a-percentage-of-gdp-2/" target="_hplink">all federal government spending</a>.