Reducing Medicaid Costs By Giving Low-Income People Less Health Care

There are two ways to look at this Medicaid chart from the Center on Budget and Policy Priorities. One way is that if you’re concerned that rising Medicaid costs plus growing public agitation about income inequality are likely to lead to increased taxation on high income households, that Paul Ryan’s budget offers a potent antidote. Another way is that if you’re concerned about the ability of low-income and disabled individuals to obtain health care, Paul Ryan’s budget offers a disaster. But I was dialoguing yesterday with some folks on Twitter who it seems to me want to have it both ways—like Ryan is just offering some magical efficiencies that will save money (thus the large reduction in spending) without really hurting people.

That’s wrong. Here’s Ryan’s big idea. Right now the way Medicaid works is that the federal government pays states a fixed share of what it costs them to provide health care services to Medicaid beneficiaries. Under Ryan’s vision for Medicaid, the way it will work is that states will get a fixed sum that grows with population growth and general CPI inflation.

So let’s imagine that, by magic, health care costs grow in line with general CPI inflation. Now what happens as the population ages? Well, as everyone knows older people need more health care services than younger people do. So if you cap the per capita availability of health care services in an aging population, you get declining adequacy of coverage. That’s the very heart and soul of the Ryan vision for Medicaid—lower taxes on the rich financed by less adequate coverage for the poor and disabled. And keep in mind that’s the consequences of his plan with the heroic assumption that medical care inflation can be held to the level of average economy-wide inflation.

How likely is that? I would be willing to wager basically any sum Rep Ryan cares to name that whether or not his budget is enacted, medical costs will grow faster than overall inflation over the next 20 years. Over the past 50 years, the CPI for medical care was less than core CPI only once.* And that was right before the Volcker Disinflation and reflected an out-of-control cost spiral in the rest of the economy not any great things happening in health care.

* Correction: I wrote this backwards the first time.