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Helping Paul Ryan Out

Paul Ryan and former Clinton OMB Director Alice Rivlin have come out with a Medicare and Medicaid reform proposal.  As you would expect from Ryan, the proposal is transformative and thoughtful.  Ryan and Rivlin's proposal to turn Medicare into a means-tested voucher for private insurance is a good idea and probably where the system should go in the future - though here is another way to go about it. As far as I see there are two main ways to control Medicare costs in the long run.  The first if for the federal government to simply ration care.  The promise is one of technocracy (which has its own set of problems), but we aren't likely to get technocracy.  The process of rationing Medicare will more likely look like the combination of the short-sighted and stupid across-the-board benefit cuts and lousy access to health care that characterize Medicaid and the corrupting interest group politics that that marred the passage of Obamacare.  By the time the American political system is done rationing health care to seniors, we'll be begging for death panels.  The alternative is a system that uses market pressure to spur productivity increases and business-model innovation to control medical inflation. 

Just the same, if I were a conservative Republican candidate for state or national office in the next few years, I think I would steer clear of supporting the Ryan-Rivlin Medicare reform proposal (I think that conservative journalists and popularizers should boom it at every opportunity as an alternative to simple state rationing.)  The proposal sounds terrifying because it means replacing your Medicare with a voucher and a "good luck finding an insurance plan."  I don't think market-oriented change to Medicare, even if phased in for those currently 55 and under, will happen in such a radical way.  I think that the conversion of Medicare into a private insurance voucher (if it is to happen) will have to follow rather than lead the expanded use of consumer-driven health insurance policies elsewhere in the population.  If market-driven reforms are having highly visible benefits in other population groups, it might become nontoxic to push to convert Medicare into a private insurance voucher.  In the meantime, I think it makes more sense to emphasize other incremental market reforms for the working-aged and phasing in a competitive pricing system for future Medicare beneficiaries who are currently 55 and under (though you would have to be willing to answer attacks about that policy too.)

Ryan and Rivlin's proposal to turn Medicaid into a block grant is more politically saleable, but Ryan (or even Ryan and the congressional Republicans) can't do it alone.  Transitioning Medicaid into a block grant that gives states the flexibility to implement market-oriented reforms (and there are lots of ways to go about this) would have to mean winning over the public despite the hysterical objections of the dominant social democratic wing of the Democratic Party.  Social democratic-leaning Democrats (to include our President and most of the remaining House Democrats) would be sure to argue that block granting Medicaid would mean abandoning the poor.  This is where Republican governors and state legislators need to step up if they are serious about averting government-run health care.  If the Republican-run states have plausible plans for how to use those block granted funds (and push to implement market-oriented reforms even before Congress votes to block grant Medicaid), in ways that will control costs and maintain or even improve access to health care for the poor, it will go a long way to educate and reassure the public.  One of the reasons it was politically possible to block grant AFDC to the states in 1996 was because some states had already implemented work requirements and eligibility time limits similar to the ones in the eventual federal law.  The fact that states had already implemented such policies made it tougher for opponents of welfare reform to terrify the public into thinking that the federal welfare reform law would kill masses of children.  The example of reformist governors in the early 1990s also shows the value of persistently working the waiver process.  It will be easier for Republicans in Congress and an (eventual) Republican President to win over the general public and maybe even some moderate Democrats to the block granting of Medicaid, if Republican-led states governments show that they are ready to take over a block granted Medicaid program in a useful and responsible way.    

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