Rep. Paul Ryan's Medicare privatization plan

But because commercial insurers cost more to run than government designs, the Wisconsin Republican's proposal to privatize Medicare beginning in 2022 would actually spark a dramatic increase in how much the nation spends on healthcare for the elderly, according to an independent analysis by the nonpartisan Congressional Budget Office.

Reporting from Washington-
When House Budget Committee Chairman Paul D. Ryan unveiled his blueprint this week for cutting federal spending by $5.8 trillion over the next decade, they argued that a revamping of the government's health safety net would rein in skyrocketing costs.

Even as the federal government cut its own spending, seniors would finish up paying  three times as much out of their own pockets or over $12,510 a year, the CBO estimates. Altogether, the total cost of insurance would be higher.

Ryan's office did not reply to repeated requests for comment about the CBO analysis. But the congressman has repeatedly said that applying what they calls "free-market principles" to the insurance market is the best way to control costs.

"We can drive innovation, productivity improvements and performance in healthcare," Ryan said Tuesday in a presentation to the conservative American Enterprise Institute in Washington.

Under Ryan's proposal, seniors and others on Medicare would start receiving a set amount of money, beginning in 2022, to offset the cost of buying a private insurance plan that would replace the federal government's Medicare plan.

This voucher process or "premium support," as Ryan calls it  would give the typical 65-year-old American $8,000 yearly to buy a health plan, about the same amount of money that analysts expect the Medicare program would spend on that senior in 2022 under the current program.

Wealthier and healthier seniors would get less, while poorer and sicker beneficiaries would get more.

That would leave the senior to pay the difference, an estimated $12,510.

But the CBO document says the money won't be . The cost to buy private insurance, and the projected out-of-pocket spending that the 65-year-old would must pay for medical care in 2022, would total about $20,510 per year, according to the CBO, which both Republicans and Democrats depend on to independently evaluate the effects of proposed legislation.

That would leave the senior to pay $6,150 out of pocket.

By comparison, if the current Medicare program is continued, the CBO estimated that it would cost about $14,770 to provide insurance to that same 65-year elderly in 2022, assuming Congress did not dramatically slash payments to doctors.

A significant factor in the cost difference is the relative inefficiency of private health designs. Although commercial insurers may do a better job of managing their customers' care, they are not as efficient as Medicare at controlling costs. "Both administrative costs [including profits] and payment rates to providers are higher for private designs than for Medicare," the CBO noted.

"A typical beneficiary would spend more for healthcare," the CBO concluded about Ryan's proposal.

Because Medicare covers about 48 million Americans, it is also able to make use of its unmatched market clout to pay lower prices to hospitals and doctors, saving money.

That is consistent with earlier research by the budget office and the independent Government Accountability Office, which found that private designs that contract with the federal government to provide Medicare Advantage designs to seniors have higher administrative costs.

The new healthcare law signed by President Obama last year depends on that market power by using Medicare to encourage hospitals and doctors to become more efficient and work more closely together, which plenty of healthcare specialists think is crucial to controlling healthcare costs.

The Ryan proposal would eliminate that by repealing the healthcare overhaul.

That is "exactly the wrong direction, the opposite from what you require to do," said Robert Greenstein, president of the left-leaning Middle on Budget and Policyowner Priorities, which also analyzed the Ryan budget. "What you require to do is cover more people and reduce costs."