Evan Soltas on What Canada Can Teach the United States About Block Grants

by Reihan Salam

Evan Soltas of Bloomberg View has a useful reminder that not all block grants are created equal. Specifically, he looks to Canada’s experience in using block grants to encourage cost control efforts at the provincial level:

Canada has been using block grants for 35 years. After several years of ruinously high growth in Medicare expenses during the 1970s, their federal government abandoned a 50-50 cost-sharing plan in 1977. Through the Canada Health Transfer program, which gives states some money directly and some through tax-shifting agreements, Canadian provinces and territories receive equal per capita aid, regardless of actual health care expenditure. Growth in aid has varied over time, but starting in 2017 it will match the three-year moving average growth rate of nominal gross domestic product — which, on rough average, runs at 5 percent annually — with an unconditional floor of 3 percent annual growth.

By comparison, Medicaid expenditure in the U.S. has grown rather consistently at 10 percent annually for decades, and nominal per-enrollee Medicaid expenditure has risen at roughly 8 percent annually.

Soltas raises a number of important caveats, e.g., Canada’s single-payer system gives its government considerable leverage, and this has contributed to the success of cost control efforts. Yet other lessons are salient in the U.S. context, e.g., the diffusion of effective cost control strategies across jurisdictions. In his conclusion, Soltas argues — correctly, in my view — that Ryan’s Medicaid reform proposal should incorporate a somewhat more generous growth rate:

Ryan’s block grants should grow at medical cost inflation plus the rate of growth in the Medicaid-eligible population, so that grants increase during hard times. Since Medicaid is not a universal program, the level of the block grants should be determined by Medicaid-eligible population, not by total state population, so that per-enrollee expenses are equal, matching Canada’s practice of offering equal per-enrollee grants across provinces.

Yet Ryan’s aggressive Medicaid spending targets saves an enormous amount; a less stringent formula will increase the pressure to raise tax revenues. 

The Agenda

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