Josh Barro on Chairman Ryan’s Budget

First, I want to endorse Josh’s post on how to block grant Medicaid. I particularly agree with him on the notion that the federal government needs to play a counter-cyclical role, as state governments don’t have that option:

It should be a measure that tracks the Medicaid-eligible population. Since states would be able to set their own eligibility standards, actual eligibility wouldn’t work. Instead, the federal government should set a standard for “typical” coverage—e.g., 100 percent of the federal poverty line—and adjust the block grant as that population grows and shrinks. (The population measure should also take into account the less-volatile population that receives nursing care through Medicaid.)

I’d also like to discuss Josh’s City Journal article on “Magical Health-Care Savings,” the most trenchant criticism of the House GOP budget proposal I’ve seen thus far. I’ll just underline that Josh and I have expressed sympathy for the premium support model in the past, as in this NR article from last year:

Many on the left have attacked the Ryan plan for “privatizing” and “gutting” Medicare. Again, what the plan actually does is to voucherize Medicare, giving seniors money to buy insurance on the private market. The vouchers grow slightly more slowly than medical costs do, a gap the plan hopes to make up with cost-saving health reforms. We are enthusiastic about these reforms, which include efforts to introduce more-effective price signals in the health-care market, along with tort reform and modification of health-insurance mandates. But a clearer picture of the likely cost savings will be needed — along with a willingness to adjust if sufficient savings do not materialize. 

The problem, as Josh makes clear in City Journal, is that the new Ryan approach grows premium support much more slowly than medical costs. This will be very difficult to sustain politically, particularly as medical providers lobby for an endless round of “premium support fixes.” Josh does, however, offer constructive criticism:

An opportunity for health-care cost control that has so far been overlooked lies in the tax code: if we reduced or ended tax preferences for health benefits, we’d lessen people’s incentive to consume too much health care, and costs would rise more slowly. Both Obama and Ryan have said, without specifics, that we should enact a tax reform that broadens the income-tax base, and Ryan has previously called for ending the exclusion of employer-paid health benefits from income tax and replacing it with a one-size-fits-all credit that doesn’t get bigger when you consume more health care. If he incorporates that idea into his budget proposal, he’ll be able to make a much stronger claim that his plan slows health-care cost growth. 

As David Leonhardt noted over the weekend, the tax exclusion for employer-sponsored insurance cost $264 billion last year. Eliminating it could purchase a great deal of deficit reduction or it could fund deep cuts in marginal tax rates, or some mix of both, while encouraging cost-consciousness. 

My guess is that some conservatives will object to Josh’s analysis, seeing it as too pessimistic if not “politically counterproductive.” I see things differently. Criticisms of the Path to Prosperity have tended to come from people who see efforts to reduce the federal spending burden as a moral outrage, which makes it hard for the people right to take these criticisms seriously, even when they contain a grain of truth. This creates a serious blind spot that makes it harder to advance conservative public policy goals over the long run. 

Reihan Salam — Reihan Salam is executive editor of National Review and a National Review Institute policy fellow.

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