House Budget Committee Chairman Paul Ryan has proposed major structural changes to Medicare and Medicaid. That’s good. Medicare in particular is one of the major drivers of increasing deficits, due to the unfunded prescription drug plan. But he only gets one of his proposals right.
He proposes turning Medicaid, the health care program for the poor that is jointly administered by the feds and the states, into a block grant program, similar to what was done for the TANF* (formerly AFDC**) welfare program. That change in the welfare system has been a resounding success (even through the recent recession, TANF rolls were lower than they had been under the old AFDC program, although there was increased enrollment in the Food Stamps and WIC*** food programs). The reason is not that complex. Because it’s not state money, states don’t feel the need to cut the program to the bone to balance their state budgets or avoid raising taxes or cutting programs supported by more affluent and politically influential people, but they do have an incentive to get the most bang for the buck to make constituents happy. As well, the TANF law contains specific provisions designed to limit lifetime welfare recipiency while allowing states great leeway to design programs that meet federal goals while paying attention to local conditions.
I think there’s good reason to believe that a block grant for Medicaid would work the same way, assuming it was as well-designed at the federal level as TANF is, because like TANF it’s a welfare program for the poor and many of the same conditions apply, both politically and in terms of state-by-state differences in types of problems faced. That doesn’t mean every state would do a great job–sometimes well-intentioned people make choices that don’t turn out well, and some people (on each side of the aisle) will insist on an ideological program (whether insisting that it cover all abortions or denying all medicaid to anyone who’s ever had an abortion) instead of a functional one. But we shouldn’t use an ideal system as our comparison; instead we need to compare to whether it’s likely to be an improvement on the current system, and based on comparison to TANF, there’s at least reason to be cautiously optimistic that it very well could be. There are good lessons to be learned from the AFDC to TANF transformation, but while I think the Democrats in fact recognize them, it still goes against their basic ideological approach, and I don’t think they are willing to apply them.
The Medicare proposal is not nearly as good. Ryan proposes to directly subsidize elderly, particularly the low income elderly, persons’ purchase of private health plans, with the individual covering costs over and above the subsidy. And it’s at this point that I wonder if Republicans are even aware of their own long-standing rhetoric about government subsidies. They regularly criticize subsidies for having market-distorting effects, yet they seem either to not believe or not understand their own arguments. Subsidies are supposed to reduce the price for consumers, but they won’t do so when the producer can raise their rates to keep the consumer’s price constant and take the subsidy as rent. In a very competitive market this couldn’t happen, but a) in a competitive market the subsidy wouldn’t be necessary and b) health insurance is not (at least yet) a very competitive market. In short, the Medicare proposal would be a big gift to the insurance companies, and might do nothing to effectively help low-income retirees.
Taking the subsidy as rent could be prevented by passing regulations to ensure it doesn’t happen–and since when have Republicans wanted to pass business regulations? They are truly pro-business and not pro-market, and I think many of them would be happy enough to shift public monies to insurance companies without oversight or regulatory control.
Ryan’s Medicare proposal is worse than worthless, which is a shame because his Medicaid proposal is a good idea and Medicare desperately needs to be reformed.
* Temporary Assistance for Needy Families
** Aid to Families with Dependent Children
*** Women, Infants and Children