Last week, I wrote in this space to challenge Paul Krugman’s attack on Rep. Paul Ryan. Today, the Wall Street Journal does a much more thorough job answering those criticisms.


The whole thing is a must-read, but here’s some of the most important information on how Rep. Ryan’s Medicare reforms would work:



Mr. Ryan wants to remodel Medicare by giving seniors a modified voucher to buy private insurance. Mr. Orszag, et al., concede that the roadmap would make the entitlement permanently solvent, as confirmed in an analysis by their icon the Congressional Budget Office, but they claim that the amount of the voucher would not keep pace with rising health-care costs.


This is an odd complaint for an economist like Mr. Orszag, given that more market discipline and consumer choice in health care would drive down costs as it does in all other dynamic sectors of the economy. To take one example, recent research by Michael Chernew of Harvard shows that a one percentage point increase in seniors insured by Medicare Advantage HMOs-the Ryan-like program that offers private options-reduces traditional fee-for-service Medicare spending by 0.9%, despite its price controls.


In other words, cost-conscious competition changes how doctors and hospitals provide care to all patients. A larger transition to market-based medicine could turn out to be as smooth as the private-sector shift to 401(k)s from defined-benefit pensions, and a similar reform was even suggested in 1999 by Bill Clinton’s Medicare commission, which was led by Louisiana Democrat John Breaux.