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The Agenda

NRO’s domestic-policy blog, by Reihan Salam.

A Thought on Budget Cuts



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If I favor spending x to deliver a given service, I am a good person. If I favor spending 2x, I am a really good person who wants to make an investment in the future. If I instead favor spending x-y I am a bad person, unless y is a negative number, in which case I’m a good person again. 

Before accepting this logic, I’d want to know a few other things. What is the lowest price at which we can get some institution, public or private, to deliver this service at an acceptable level of quality? Is it 3x? Is it .5x?

It is certainly possible that the political process has through some miraculous process settled on an amount that we can’t live without, and that the organization delivering the service is doing so as cost-effectively as possible. 

I’ve been thinking about the Medicaid debate. Medicaid dollars aren’t flowing into the hands of poor people. Rather, Medicaid dollars flow into the hands of providers, who use this money to compensate health workers and to make capital investments, etc. The Medicaid debate has been framed as those who want to cut the Medicaid budget vs. poor people. But one can also characterize the debate as those who want to cut the Medicaid budget vs. medical providers, for whom what the rest of us characterize as “the misalignment of incentives” is an economic boon.

A sobering fact about our democracy is that poor voters are less politically engaged than middle-class and rich voters. Many critics of Medicaid cuts see themselves as champions of voiceless poor voters, who find themselves badly overmatched in public debates. Yet the opponents of Medicaid cuts are also championing the interests of incumbent providers, who have deep pockets and a strong interest in characterizing these debates in moralistic rather than technocratic (e.g., are state governments really getting the most of out Medicaid managed care organizations? should state governments embrace a more centralized model for delivering health services to the poor?) terms.

Though I favor block-granting Medicaid and reducing federal Medicaid expenditures, I’m of the view that the Medicaid proposal in Chairman Ryan’s budget will be difficult if not impossible to sustain. But we should be wary of those who tell us that proposals to cut Medicaid represent attacks on poor children while leaving providers out of the picture. I say this in recognition of the fact that Medicaid offers meager reimbursement rates. Medicaid’s hybrid structure has greatly impaired the ability of state policymakers to devise more cost-effective approaches, and reforming this structure and imposing a modicum of spending discipline on the program is an important first step. 



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