08/20/2012 06:17 pm ET Updated Aug 21, 2012

Peter Orszag: Paul Ryan's Medicare Plan 'Flawed,' Relies On The 'Competition Tooth Fairy'

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."

You can read more of Orszag's criticisms of Ryan's health care proposals in Bloomberg View here and here.

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.



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