Orszag Mocks Ryan Plan as ‘Competition Tooth Fairy’

Paul Ryan's health care proposals are flawed because they place too much emphasis on market forces, former Obama administration budget director Peter Orszag told CNBC’s “Squawk Box” on Monday.

Peter Orszag, vice chairman of global banking for Citigroup Inc.
Scott Eelis | Bloomberg | Getty Images
Peter Orszag, vice chairman of global banking for Citigroup Inc.

“Health care is a different beast than most other markets, Orszag said, as he mocked the Republican vice presidential hopeful's plans for Medicare as part of a "tooth fairy" belief that competition lowers costs.

"Health care costs are concentrated among a very small number of beneficiaries," Orszag added. "That's where all the money is, and most of the proposals that believe in this sort of 'health care competition Tooth Fairy' don't really take that into account.”

“So 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,” he added. (Read More: Ryan's Way: How He Would Change Medicare).

Orszag, director of the Office of Management and Budget early in President Barack Obama's tenure and is now vice chairman at Citigroup, also said that health care cost growth has also slowed down dramatically, and hasn’t been a result of the sluggish U.S. economy. (Related: ‘Time for a Change’ in Washington: Dolphins Owner).

“If it were the economy, you wouldn't expect Medicare (explain this) to slow down more than private health market has, that's what's happened,” he noted. “If it were the economy if you looked across states you'd expect to see a relationship between the increase in unemployment and the deceleration in health care, that's also not true.”

Orszag argues that other factors other than competition would help drive down soaring medical coverage costs.

“The key to getting constraining health care costs is attacking those high cost cases, chronic conditions, people that are in severe shape, and for those people the key is what the hospital and doctors are recommending,” he explained.

Cost sharing and giving consumers more power to make health care decisions can also help, he added.

“The key is changing the payment system away from fee-for-service towards bundled payment and towards accountable care organizations and that's happening much more rapidly than people in Washington at least know or maybe appreciate,” Orszag said.