Vouchers, Poverty, and Fraud? Oh, My!

As America waits for Vice President Biden and GOP nominee Paul Ryan to duke it out on the national stage tonight, setting some facts straight is important.

One of Paul Ryan's, and indeed, the Romney-Ryan ticket's more controversial proposals are their reforms to Medicare and Medicaid. As Chairman of the House Budget Committee, Ryan proposed voucherizing Medicare and turning the Medicaid program into a block grant to states. The Romney-Ryan plan takes some cues from these proposals, but instead of voucherizing Medicare,  proposes a premium support (also known as 'managed competition') model, where seniors would receive a sum of money from the government in order to purchase health insurance - either on the private market, or through the government's fee-for-service Medicare program. Because of Ryan's obvious influence in the development of the GOP ticket's proposal, he will likely have to defend it on several points.

Romney-Ryan Voucherizes Medicare

This simply isn't true. The Obama administration has used scare tactics to attack the Romney-Ryan proposal, claiming that it would force seniors to pay an ever increasing share of medical spending out-of-pocket because vouchers would not grow with the rate of medical costs.

While Ryan's proposal as House Budget Chairman did call for privatizing Medicare (the same as voucherizing it), the Romney-Ryan plan does not go that far. The money given to seniors under the managed competition model would be based on the second-cheapest plan on the market (which would have to be comparable to traditional Medicare coverage), thus ensuring that seniors can receive adequate coverage. Moreover, those with lower incomes would receive greater premium support.

In short, traditional Medicare would be left intact and seniors could choose to stay in it if it offered better value for the same price.

Block Grants Will Strip the Poor of Medicaid Benefits

Yet another attempt by the administration to discredit Romney-Ryan's reform proposal; again this is false. Whereas now Medicaid is a state-administered entitlement program (anyone gets benefits if they meet the income qualifications) that relies on federal matching and is open-ended, i.e., the more state states spend, the more federal dollars they draw down, the Romney-Ryan plan would give states fixed sums of money - block grants - to allow them to innovate in Medicaid delivery systems in ways that  that work best for the demographics of their communities. The administration has criticized this plan by claiming that beneficiaries of Medicaid would lose benefits and be forced onto the streets.

If this refrain sounds familiar, that's because it's the same criticism that was levied at welfare reform in the 90s. The original welfare program, Assistance to Families with Dependent Children (AFDC) had perverse incentives that discouraged returning work, and encouraged dependency on the government - a vicious cycle that contributed to a growing wave of poverty in the 80s. Under the Clinton administration and with a Republican-controlled Congress, reforms were passed, changing the program into Temporary Assistance for Needy Families (TANF). These reforms block-granted money for states to offer benefits to their poor, but had strict work requirements - instead of the doomsday scenarios critics foretold, single-mothers started returning the workforce, pulling themselves and their children out of poverty.

States, given the opportunity, can have had great success innovating programs through block grants. Given the success of block-granting in welfare reform, it is hard to see why block granting Medicaid would be any worse and it would finally give states the right incentives to coordinate care and control costs effectively. For more details on how a Medicaid block-grant program might look, see my colleague Paul Howard's recent paper.

Medicare is More Efficient than Private Insurance

An important talking point that is likely to come up is the conventional misconception that Medicare (and sometimes Medicaid as well) is more efficient than private health insurance. The arguments seem solid - on the books, Medicare's administrative costs are only 2 percent of total expenditures (private insurance is around 15 percent) and government has monoposonistic power to negotiate rates with providers, taking advantage of economies of scale. The only problem is that these two points obscure a critical part of the story - fraud.

The Government Accountability Office (GAO) has consistently found Medicare fraud to be at least 10 percent, and Medicaid fraud to be around 8 percent. For 2011, this comes out to $55 billion and $34 billion, respectively - $89 billion in total. To put that in perspective, this could cover the health care costs of 4.5 million families for a year. And this is just an estimate, which is likely on the low-end.  

Ignoring that Medicare and Medicaid have little to no marketing costs, increasing their fraud-fighting efforts (and thus increasing administrative costs) would be worthwhile. In fact, the GAO has also routinely recommended that the Centers for Medicare and Medicaid Services (CMS) implement their recommendations, while noting that most recommendations have not been implemented. The most recent GAO report found, to no one's surprise, rampant fraud in both Medicare and Medicaid programs. Fraud rates for private insurers, by way of comparison, are about 1.5 percent

Perhaps Medicare and Medicaid should try to emulate the private sector rather than the other way around.

As you watch the Vice-Presidential debates, keep an eye out for these controversial talking points.

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