Tag: Paul Ryan

Three Formulas

During the last election campaign, Tea Party-backed Republicans across the country rode to power on a tidal wave of advertising attacking health care reform as a cut in Medicare.  It is. If efficiency programs like the accountable care organizations being formed across the country don’t hold down spending by about $500 billion over the next decade, an Independent Payments Advisory Board would make recommendations for holding growth in Medicare spending to the growth in the domestic economy (GDP) plus one percentage point.

In most years when the economy is humming along, that would be about 4 percent. Over the past decade, health care spending for seniors grew at about 6 to 7 percent — the same as health care spending for the rest of the population. So if the Medicare delivery system reforms don’t work, Congress will either have to adopt the IPAB’s recommendations or institute cuts of its own to ratchet down spending.

This week, President Obama upped the ante to meet his budget deficit reduction targets over the next decade. Medicare spending would be held to GDP plus 0.5 percent, another approximately $300 billion in cuts. About $50 billion would come from eliminating unnecessary errors and hospital re-admissions. The rest was unexplained.Continue reading…

To the Barricades!

Last week, Republican Congressman Paul Ryan unveiled his plan to save Medicare and Medicaid. Supporters hailed the plan as revolutionary; critics decried the plan as revolutionary. For something so revolutionary, it sure is based on some old ideas.

In 1978, Stanford Business School professor (and my soon to be advisor) Alain Enthoven published an article in the New England Journal of Medicine in which he described his “Consumer Choice Health Plan.” Enthoven proposed tax-funded vouchers that all Americans could use to purchase health insurance. The amount of the voucher would be tied to income and individuals could use their own money to purchase a plan that cost more than their voucher. Enthoven even included some rules limiting the ability of insurers to cream skim healthier enrollees; new and improved versions of these rules are written into the insurance exchanges as part of the Affordable Care Act.

In 1986 I published a paper that described how states were trying to control Medicaid expenses by regulating the prices they paid to hospitals. I pointed out that states had surprisingly little interest in reining in hospital costs because the federal government paid for half or more of the Medicaid bills. The solution was apparent to any economist – convert the “percent of Medicaid spending” formula to a block grant, so that the states are 100% responsible for the costs of Medicaid expansions.Continue reading…


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