Ryan & Rivlin on containing health care costs

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This week’s Economist has an article worth reading on the various proposals to curb the burgeoning federal deficit. In it, you can view a comparative table of deficit cutting options (would include it here but it’s worth reading the whole thing).

As Economics 21 notes,

Many critics have taken Bowles-Simpson to task for “hand-waving” at Medicare cost growth by declaring an intention to cap Medicare to a growth rate of GDP growth + 1% while retaining its defined benefit structure. Given that Medicare has grown at a far faster rate in recent years, the idea is that this is a highly unrealistic projection.

Happily, left and right have come together, respectively, in the persons of Paul Ryan (WI) and Alice Rivlin (former director of the Congressional Budget Office during the Clinton years) to make a proposal that builds off of the Medicare reform proposal that Congressman Ryan first suggested in his A Roadmap for America. (The current CBO’s evaluation is attached here.)

Here are some interesting highlights noted by John Goodman of the National Center for Policy Analysis:

  • Medicare would, for the first time, be transformed into rational insurance. Beginning in 2013, all enrollees would be protected by a $6,000 cap on out-of-pocket expenses; in return they would pay for more small expenses on their own.
  • After a decade, people newly eligible for Medicare would receive a voucher to purchase private insurance instead. The value of the voucher would grow at the rate of growth of GDP plus 1% (note: for the past four decades, health care spending per capita nationwide has been growing at about GDP growth plus 2%).
  • Medicaid would be turned into annual block grants to the states. The value of the block grants would also grow at GDP growth plus 1%.
  • Stay tuned in the hope of a rational discussion of how we turn around the battleship of state.