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Two Cheers for Rivlin-Ryan

Thursday, January 6, 2011

How a modest plan shows progress in Washington is possible.

Whether you liked the deficit commission’s plan or not (I didn’t), one thing was certain: it failed to address the nation’s spending crisis by failing to propose fundamental entitlement reform. This is why the parallel release of a bipartisan plan by House Budget Committee Chairman Paul Ryan (R-Wisconsin) and former Clinton administration budget director Alice Rivlin was welcome news. The “Rivlin-Ryan plan,” as it is known, represents a step in the right direction to address the most pressing problem in the federal budget: the explosion in Medicare and Medicaid spending.

The plan is based in large parts on Ryan’s “Roadmap” budget plan. It is not radical. It would only reduce budget deficits by $280 billion from 2011 to 2020.

The plan has two principal features. First, people who turn 65 in 2021 or later would not enroll in existing Medicare. Instead, they would receive vouchers to purchase healthcare in the private market (the voucher amount would equal the average amount of Medicare expenditure per enrollee, growing at the same rate of growth as gross domestic product (GDP) plus 1 percentage point). These vouchers would introduce a meaningful element into the healthcare system, one currently missing from our single-payer Medicare program: price competition. By introducing competition for consumers into the insurance market, the voucher system will pressure insurers to compete on cost while maintaining a high standard of care.

Second, the Rivlin-Ryan plan would establish Medicaid block grants for states. These grants would continue providing states with federal Medicaid, but determine funding evenly by the state’s proportion of low-income residents, growing in future years at gross domestic product plus 1 percent (including adjustments for population growth). In exchange for slower growth in federal support for Medicaid, states would have a greater level of flexibility than under the current system. Overall, the plan would contain the growth of Medicare and Medicaid to the growth of GDP plus 1 percent.

Beyond Medicare and Medicaid, the plan would also reform malpractice law as well as repeal an ill-advised long-term care program (called the “CLASS Act”) created in the recently passed healthcare law.

deRugy 1.5.10

The chart above shows the projected healthcare spending the Congressional Budget Office predicts assuming the status quo, compared with spending under the Rivlin-Ryan plan. As we can see, the bipartisan plan is by no means drastic. In fact, the plan continues the Washington tradition of extending open-ended entitlement promises to millions of people without paying for them. It reduces spending growth rather than dramatically changing the course the country is on. I think we should do more to cut healthcare spending, but this is a good start to signal that we are serious about addressing the nation’s spending issue.

At a minimum, the plan is an improvement over the nation’s current path. More importantly, it is evidence that some on the political center-left agree that Medicare and Medicaid’s unsustainability is a reality we can no longer ignore.

Veronique de Rugy is a senior research fellow at The Mercatus Center at George Mason University.

FURTHER READING: De Rugy says President Obama pulls “A Con Job on Jobs,” argues that the GOP Pledge to America is “Not Much Better Than the Status Quo,” educates us on “Taxes and Presidential Math,” and poses “The Limits of Blaming Bush.”Andrew Biggs, Kevin Hassett, and Matt Jensen suggest “The Right Way to Balance the Budget” while Michael Barone reports, “While His Base Rages, Obama Faces Tax-Cut Reality.”

Image by Rob Green/Bergman Group.

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