Health Spending Gets Real Reform in Ryan Budget

Kevin Glass | April 05, 2011 12:47 PM

Health care spending done by the federal government constitutes the largest part of the U.S. budget. And it is the future spending promised by these two programs -- Medicare and Medicaid -- that threatens to bankrupt us. The Ryan budget hits both of these programs with real reform.

Medicaid would be transferred to a block-grant program, where, instead of covering over half the costs of state-administered Medicaid programs, the federal government wold give states a flat rate based on the number of Medicaid-eligible people in each state. This would eliminate some of the bad incentives created by the program as currently structured, where the richest states are able to receive the most amount of money from the government. The reforms would encourage cost control and results achieved by each state.

The other massive government program, Medicare, would have its open-ended promise to all seniors changed to a premium-support system. Rather than the single-payer system that Medicare currently is, there would be choice and competition for all seniors and the ability to pick amongst qualified private plans.

The Medicare reforms actually only save a modest amount of money over the ten-year time frame on which the budget is framed: $30 billion over the CBO baseline. But the cost savings from Medicare will come from future cost controls and the elimination of an open-ended promise. And it's a marked improvement over Obama's plan. Ryan's budget saves almost $400 billion on Medicare compared with the Obama budget.

Medicaid, on the other hand, gets to be a well-managed program within the ten year timeframe. The budget saves $771 billion on Medicaid reform over the next ten years. This would be an amazing amount of savings and would put Medicaid on a sustainable budget track while at the same time reforming for the better an important part of the social safety net.