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CBO analysis of the Rivlin/Ryan Medicare voucher and Medicaid block grant proposals

Preliminary Analysis of the Rivlin-Ryan Health Care Proposal

(Analysis transmitted by letter from Douglas Elmendorf, Director of the CBO, to Rep. Paul Ryan)
Congressional Budget Office
November 17, 2010

For purposes of this analysis, CBO assumed that all individuals projected to enroll in Medicare would use the proposed voucher. Voucher recipients would probably have to purchase less extensive coverage or pay higher premiums than they would under current law, for two reasons. First, most of the savings for Medicare under the proposal stem from reducing the amounts that the federal government would pay for enrollees on a per capita basis, relative to the projections under current law. Second, future beneficiaries would probably face higher premiums in the private market for a package of benefits similar to that currently provided by Medicare.

Similarly, reducing federal payments for Medicaid relative to currently projected amounts would probably require states to provide less extensive coverage, or to pay a larger share of the program’s total costs, than would be the case under current law.

For both Medicare and Medicaid, the budgetary effects would become larger over time because federal payments would tend to grow more slowly under the proposal than projected costs per enrollee under current law. Although the level of expected federal spending and the uncertainty surrounding that spending would decline, enrollees’ spending for health care and the uncertainty surrounding that spending would increase.

http://www.cbo.gov/ftpdocs/119xx/doc11966/11-17-Rivlin-Ryan_Preliminary_Analysis.pdf

Comment: 

By Don McCanne, MD

Congressman Paul Ryan and former Clinton budget director Alice Rivlin are both members of the Bowles/Simpson deficit commission. They have asked the Congressional Budget Office to analyze their proposal to reduce future federal health care expenditures by converting Medicare to a voucher program for purchasing private health plans, and by converting Medicaid into a block-grant program for the states.

If you read the analysis found at the link above, you would see that the deficits related to future spending in the Medicare and Medicaid programs would be reduced by this proposal. If your only goal is to cut the federal deficit, then the analysis would predict success, but at what cost?

Compared to the current Medicare program, the vouchers would purchase less coverage, or the premiums paid by the beneficiaries would be higher, or both. Merely shifting to private plans alone would result in higher premiums if the benefits were to remain the same as in the traditional Medicare program. Many Medicare beneficiaries are already burdened with excess medical debt, and the voucher proposal would increase the burden by both lowering the federal contribution and increasing the administrative waste characteristic of private plans.

Converting Medicaid into a block grant program uses the same principle as converting defined benefit programs into defined contribution programs. The federal government ends its exposure to the risk of ever-increasing costs by fixing its contribution to the states through a defined block grant. The state then bears the risk for increases in health care costs.

Of course, states are already heavily burdened by the costs of their Medicaid programs. Adding more to that burden further strains state budgets. The states are then put into a position of trying to balance reductions in health services with the greater deficit holes punched into the state budgets. Passing the problem from the federal taxpayer to the state taxpayer accomplishes nothing.

As the CBO analysis states, "Although the level of expected federal spending and the uncertainty surrounding that spending would decline, enrollees’ spending for health care and the uncertainty surrounding that spending would increase."

What is our goal here? Appeasing anti-government budget hawks? Or removing financial barriers so that people can get the health care that they need?

The budget hawks say that we need to make hard choices. So what about the choice of a single payer monopsony - an improved Medicare for all? That would solve the budget deficit problem while enabling everyone to have the care that they need - not really very hard choices. Maybe it would be a hard choice for the hawks to accept a government program that would actually work, but let's hold them to their demand. If they think an improved Medicare for all is a hard choice, then so be it.