Starting in 2023, the plan would give seniors vouchers to purchase either private insurance or traditional, government-run insurance on an exchange. (This means that no one over 55 would see any changes to Medicare they now receive or expect.) Private insurers would compete with the traditional Medicare program to offer the best plan possible for the level of "premium support" that a senior gets. Once a senior had a plan, he would have to pay out of pocket for any health care costs the voucher couldn't cover.
Federal spending increases on Medicare would be capped at half a percentage point higher than the growth rate of the economy. Theoretically, that means that if health care costs rise faster than that, seniors would increasingly have to pay more out of pocket.
The rationale for this dramatic change to Medicare is that it would compel seniors to spend less on health care, said Joseph Antos of the conservative American Enterprise Institute, and thus compel health care providers to offer more competitive prices.
"It's widely acknowledged we have overuse" in the health care sector, Antos told CBSNews.com. "If we change to a system that says the health sector has a fixed amount of money this year... it creates a tremendous incentive for providers to change the way they operate and think more about what is the most efficient way to treat a patient's problems."
The bottom line is that the plan -- like President Obama's own Medicare reform plans in the Affordable Care Act -- depends on the health insurance market becoming more efficient.
"If [insurers] can't become more efficient, then we're sunk," Antos said. "It's not just senior citizens -- everybody is doomed." However, he added, "There's a reason to think if you change the rules the right way, there will be this movement towards efficiency."
Will it cost seniors more?
While conservatives think Ryan's plan will lead to more efficiency, critics of the plan say that seniors will just have to pay more for the same health care.