Left And Right Extremists Fail To See Paul Ryan’s Win-Win Entitlement Reform

Excerpted from Forbes.com

The New York Times told its readers on March 12 that Paul Ryan’s proposed 2014 budget involves “eliminating Medicare’s guarantee to retirees” and “dispensing with Medicaid and food stamps….”  But Joe Farah, CEO of WND News, told his readers on March 15 that Ryan’s budget “fails to address unsustainable ‘entitlement’ programs.”  They cannot both be right.  But they can both be grievously wrong.

We hear a lot of talk about how Ryan’s proposed traditional budget is so “extreme.”  But it is these two comments that represent the extremes on the issue.  This kind of disconnected from reality rhetoric from both sides is what makes our democracy dysfunctional, unable to seriously discuss major issues.

A Better Medicaid for the Poor

Ryan’s proposals for Medicaid and food stamps would simply extend the proven, enormously successful, 1996 welfare reforms of the old AFDC program to those two programs.  The 1996 AFDC reforms returned the share of federal spending on AFDC to each state in the form of a “block grant” to be used in a new welfare program redesigned by the state based on mandatory work for the able bodied.  Like Medicaid, federal funding for AFDC previously was based on a matching formula, with the federal government giving more to each state the more it spent on the program, effectively paying the states to spend more.  The key to the 1996 reforms was that the block grants to each state were finite, not matching, so the federal funding did not vary with the amount the state spent.  If a state’s new program cost more, the state had to pay the extra costs itself.  If the program cost less, the state could keep the savings.  The reformed program was renamed Temporary Assistance to Needy Families (TANF).

The reform was shockingly successful, exceeding even the predictions of its most ardent supporters.  The old AFDC rolls were reduced by two-thirds nationwide, even more in states that pushed work most aggressively, as those formerly on the program went to work, or married someone who worked.

As a result, in real dollars total federal and state spending on TANF by 2006 was down 31% from AFDC spending in 1995, and down by more than half of what it would have been under prior trends.  At the same time, because of the resulting increased work by former welfare dependents, the incomes of the families formerly on the program rose by 25%, and poverty among those families plummeted.

Medicaid currently pays doctors and hospitals only 60% or less of costs for their health services to the poor.  Consequently, the poor on Medicaid face grave difficulties in finding doctors and hospitals that would serve them, and in obtaining timely and essential health care.  They suffer worse health outcomes as a result, including premature death.  Scott Gottlieb of the New York University School of Medicine writes in a March 10, 2011 commentary in the Wall Street Journal (“Medicaid Is Worse Than No Coverage at All”),  “In some states, they’ve cut reimbursements to providers so low that beneficiaries can’t find doctors willing to accept Medicaid.”

What the states could do under Ryan’s proposed reforms is shown by the example of Rhode Island, which received a broad waiver from federal Medicaid requirements in return for a fixed cap on federal financing for 5 years.  The state turned to managed care, competitive bidding by health care providers, and comprehensive case management by private insurers for those on Medicaid.  It shifted more long term care out of nursing homes to home and community-based care.

The Lewin Group, a top health care consulting firm, studied the reforms and concluded that they were “highly effective in controlling Medicaid costs” while improving “access to more appropriate services.”  Indeed, the state’s costs were reduced by nearly 30% in the first 18 months alone.  Yet the poor enjoyed assigned health providers to ensure they received essential care.

Alternatively, states could serve the poor by using the program to provide premium assistance that would help the poor to pay for the private health insurance of their choice in the marketplace.  Such premium support would free the poor from the Medicaid ghetto, enabling them to obtain the same health care as the middle class, because they would be able to buy the same health insurance in the market.  Such market health insurance has to pay the doctors and hospitals sufficiently to enable those with that insurance to obtain timely, effective health care, or their insurance would have no customers.

This would be an enormous gain for the poor.  Yet, CBO scores extending these same reforms to Medicaid as saving $750 billion over 10 years.  That is why it involves win win entitlement reform.

The poor would similarly gain from extending these same reforms to food stamps, just as they gained from the reforms of AFDC, with similar savings for taxpayers.  This cannot remotely be characterized as “dispensing with Medicaid and food stamps,” as the esteemed New York Times tells us.  The Times these days reads like a college Marxist student newspaper.

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