NCPA - National Center for Policy Analysis

The Cliff's Notes Version of Republican Health Reform

April 2, 2012

Representative Paul Ryan (R-Wisc.) has once again proposed a budget plan that would seek to end the unsustainable growth of the federal government's entitlement programs.  Restructuring Medicare and Medicaid, while stripping some of the provisions of the Affordable Care Act (ACA), Ryan is attempting to alter policies and various incentives in the sector in order to optimize the programs, says Joseph Antos, the Wilson H. Taylor Scholar in Health Care and Retirement Policy at the American Enterprise Institute.

For the Medicare program, the most radical component of Ryan's plan would be to shift the organization from a defined benefit model to defined contribution.

  • Beneficiaries would be given a subsidy for the purchase of private plans, rather than having unlimited services provided to them directly.
  • In order to qualify for the subsidy, private plans would have to supply defined benefits that would place a floor on the comprehensiveness of care.
  • Total program spending would be limited to gross domestic product growth plus 0.5 percentage points.
  • A recent analysis shows that competition could reduce federal Medicare spending by 5.6 percent a year, maintaining basic benefits and without raising taxes.

Similarly, the Ryan budget would reform the Medicaid program in order to streamline service and adapt structures to the needs of specific populations.

  • Medicaid reform under the Ryan plan would give greater control over the program to the states in exchange for a more predictable federal subsidy paid in the form of a block grant.
  • The block grant would be indexed for inflation and population growth.
  • The relatively fixed payment would give states a strong incentive to contract with more efficient health plans.
  • According to the Ryan plan, total Medicaid spending (including both the federal and state contributions) would decline by $810 billion over the next decade.

Estimates from the Congressional Budget Office show that outlays for both of these programs are set to increase substantially, especially with health reform's expansion of Medicaid.  The Ryan plan would finally place greater control on this unsustainable growth.

Source: Joseph Antos, "The Ryan Plan: The Cliff's Notes Version of Republican Health Reform," American Enterprise Institute, March 21, 2012.

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