US Politics Special: The Conservative Way Forward on Medicaid and Medicare

Last week was a quiet one in the halls of Congress. With members of both parties convening for annual strategy meetings --– Republicans at the Conservative Political Action Conference and Democrats at a more general Caucus Retreat –== legislative action has been virtually non-existent. The House considered, and then rejected, extending certain provisions of the PATRIOT Act on internal security, and the Senate continued its careful deliberation of the FAA Air Transportation Modernization and Safety Improvement Act.

US Politics Special: A Guide to the Conservative Plan for Health Care Provision
US Politics: Economy Special --- A Conservative Roadmap to Stability and Character
US Politics Special: A New EA Series on the Debates Over the Economy

But what a hectic Washington week outside Congress, at least for Republicans. President Obama is due to release his budget request for Fiscal Year 2012, which begins 31 October 2011. Before that is even debated, however, Congress needs to resolve the issue of the unresolved FY 2011 Budget. Government operations are currently being funded by a continuing resolution that finishes on 4 March, and Republicans are wrangling over how much should be cut from this year's appropriations.

Amidst pressure from the Tea Party by and new conservative members of the House of Representatives, elected on the promise of cutting government spending, the latest figure as the target for cuts is $100 billion. That is a number Democrats in the Senate will not be able to stomach, and without some form of compromise, which looks a remote possibility right now, the Government will shut down come 5 March.

That is an event we will analyse if and when it happens –-- I had articles on government shutdowns ready three times last year –-- but the significance now is that cuts are only scheduled in discretionary spending with the much more controversial topic of reform of entitlement spending not yet on the menu.

So, for now, let's return to Rep. Paul Ryan's Roadmap, which we have been evaluating in a special series of articles on the EA USA thread, and his path for reform of the Medicaid, Medicare, and Social Security. Ryan's guiding philosophy is the vaunted economic efficiency of the free market,with hundreds of millions of individual choices in the health insurance market driving down the overall cost of health care provision.

Both Medicare and Medicaid began in 1965 as part of President Lyndon Johnson's "Great Society". Medicare is funded solely by federal dollars, partly through an employee payroll tax, and provides health care coverage for participants who are over 65. Medicaid is a joint state-federal enterprise, with states generally receiving a dollar of federal money for each dollar they spend, allowing low-income families to receive medical treatment.

The highlight of Rep. Ryan's recommendations for Medicaid is the issuing of a debit card to low-income families, loaded with a set amount of funds that can be paid to approved health care insurers. Families will receive their $5,700 tax credit, and the cash on their card, to pay for private health insurance. Families with income up to 100% of the poverty line receive $5,000 on the card, with thenamount dropping on a sliding scale until the figure reaches $2,000 at the maximum level of 180-200% of the poverty line.

Additional funding is provided depending on the number of children, and as an incentive to spend the money wisely, beneficiaries are allowed to roll over 25% of the money that they do not spend within a year. As dental care is somewhat of a lottery with the current Medicaid system, this would give families the opportunity, in theory, to save and pay for otherwise unaffordable treatments.

There are two other points to note. In 2014, under President Obama's Patient Protection and Affordable Care Act, eligibility for Medicaid expands, with individuals earning less than 133% of the poverty level qualifying for coverage. Rep. Ryan does not address that issue. And one of the major causes of spiralling costs for Medicaid –-- and Medicare -- is long-term care. Ryan's Roadmap retains the current programme, and gives each State a block grant linked to inflation and population growth to fund those services, but otherwise does not suggest any reforms.

Medicare is reformed, beginning with those who become eligible in January 2021, by the government paying a set amount to a health care insurer for the individual. The standard payment is calculated as the average currently spent per beneficiary. It is indexed to inflation, including the medical economic cost table, and again declines in accord with the income of the recipient. Below $80,000 income ($160,000 for couples) the full amount is received, with the number dropping to 30% for those with income above $200,000 ($400,000 for couples). Extra help is available for low-income recipients, with the government funding Medical Savings Accounts (MSAs) for those who cannot afford them. This means that they can enrol with plans that have high deductibles for treatment, and hence lower premium prices.

Ryan's other major change, to aid the drive for competitiveness in the market and lower costs for everyone, is that regulation of health care will be removed from the burdensome bureaucracy of the Department of Health and Human Services and given to a private agency named the Healthcare Services Commission. This group will be modelled along the lines of the Securities and Exchange Commission, producing reports and providing enforcement guidelines on the quality and prices of healthcare provision. In theory, this would enable customers to make an informed choice, and with the opening of a a national market in healthcare insurance, would lead to the needed transparency to force the current near-oligarchy of insurers to become more competitive. This option, Ryan hopes, will see smaller innovative groups enter the market, offering nationwide specialised services that will generate enough customers to become viable.

Next week, Republicans hope to have their final FY 2001 Budget proposals sorted out, giving them two weeks to negotiate some kind of compromise with the Democratic majority in the Senate before the spectre of a government shutdown appears. And though this not set in stone, there is a chance that the Senate Budget Committee, which has already acknowledged the urgent need for some sort of entitlement reform, will trade a reduction in cuts in this budget for a commitment to looking at changes in Medicare, Medicaid, and Social Security.

Next: a look at Social Security recommendations and tax reform ideas in Rep. Ryan's Roadmap", before we consider the proposals in the President's deficit reduction committee.