Is Medicaid Doomed? How Ryan's Plan Would Affect America's Very Poorest

He doesn't just want to trim America's insurance program for the poor. He wants to bulldoze the whole thing and replace it with something more modest.

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Democrats are giddy to attack Paul Ryan's Medicare reforms, but it's his plan for Medicaid that would have the fastest and most massive impact on U.S. health care. How massive? Think 44 million additional Americans without insurance, in a worst case scenario.

If that number leaves you a bit dizzy, or skeptical, it's a testament to how radically Ryan would like to reshape the federal program that's responsible for insuring low-income Americans, and which also happens to be at the heart of Obamacare's attempt to expand health coverage. In his most recent budget proposal, Ryan pledged to cut Medicaid spending by $810 billion over ten years. But forget the precise dollar figures for a moment. Romney's new running mate doesn't just want to trim the program. He wants to bulldoze the whole thing, then build a more modest replacement in its stead.  

Think of Medicaid as the quiet giant of domestic spending -- smaller and less gabbed about than Medicare, but just as important to a big swath of the country. Under the program's complex rules, the federal government and states split the cost of insuring Americans who generally live in poverty, or close to it, with Washington paying the lion's share. Currently, it covers more than 62 million people. The majority are either children or parents, but most of the program's funding goes to the old and disabled. In 2010, the price tag was roughly $263 billion for the feds and $125 billion for the states. Much of that spending pays for basic services such as drugs and doctor's visits, but a large chunk is devoted to long-term care, such as nursing homes for the elderly poor.

Before Obamacare, Washington kept its checkbook for Medicaid fairly wide open. The federal government set the minimum guidelines for who had to be covered by the program, but states could be more generous if they chose, so long as they stayed within certain guidelines. Some (think New York) tried to provide coverage to as many of their residents as possible. Others (think Florida) shot for far fewer. Health care reform opened up the checkbook even further. By expanding the program to cover childless, able-bodied adults for the first time, it lifted some of the last meaningful limits on Medicaid's largesse, other than the desire of states to shoulder their portion of the expense.

Under Ryan's proposal, Washington's open-ended commitment to helping the poor get care would be history. Instead of offering them unlimited funding, the federal government would hand each state a fixed sum of money -- or a "block grant" -- to cover the poor and uninsured as they saw fit. On its own, that change wouldn't necessarily devastate the program. But here's the key detail, the trick that yields all those budget savings conservatives are after: The grants would be indexed to grow much slower than healthcare costs.

The point is to make them stingier over time. Conservatives hope that will force states to find new efficiencies. More likely, it will just lead them to insure fewer residents, offer less generous coverage, or both. In essence, every state would have to act more like Florida, and less like New York. The graph below, from a study published last year by the Urban Institute and the Kaiser Family Foundation, shows the growing gap between Ryan's spending for Medicaid, and the program's growth with or without Obamacare.


Even without conservatives looking to slash the program, Medicaid is about to begin a somewhat awkward transition phase. Credit the Supreme Court. The health reform law attempted to guarantee insurance to an additional 17 million Americans by requiring states to cover any adult living on less than 138 percent of the federal poverty level, or about $31,000 for a family of four today. But in its decision upholding most of the law, the justices ruled that states could choose to opt out of the new mandate. Governors in some of the states which would have had to add the most residents to their rolls, such as Texas and Florida, have already said they won't take part.

Still, the Urban Institute's analysis gives us a sense of how many people would stand to lose their government care under Ryan's plan. Even if you ignore the effects of repealing Obamacare, his austere budget would still knock anywhere between 14 million and 27 million people out of the program. When you consider those who would lose coverage granted under health care reform, the total rises to between 31 and 44 million. In the end, we're talking about a potential cut of up to half the program.


What happens to those who get shut out of Medicaid? It's pretty bleak. "A small sliver will be able to get onto private plans," says the Urban Institute's John Holahan. "They may have given up private plans because Medicaid was more generous and the premiums were lower. But by and large, more people will become uninsured. I'd be hard pressed to conclude anything else."

Another, perhaps starker way to envision this change is to look at the amount of our national wealth that would be dedicated to covering the poor. Under Obamacare, the government would, by 2023, spend about 3 percent of our gross domestic product on Medicaid, the related Children's Health Insurance Program, and subsidies for low-middle income Americans to buy private insurance on health exchanges, according to the Congressional Budget Office. Under Ryan's plan, we'd spend a smidgen more than 1 percent.


All of this may seem perfectly reasonable if you view Medicaid as a broken program in which spending has simply grown out of control. Ryan -- and those who sympathize with him -- certainly do. In his view, Medicaid has grown through the years because states get rewarded for adding more residents to their rolls by getting back more in federal dollars than they spend.

But you can also look at it this way: Since the early 1970s, the number of Americans in poverty has been on a staggered rise. Thanks to its dramatic upward swoop over the past ten years, it's now back at highs not seen since 1993. Meanwhile, Medicaid spending per patient has slowed to a modest 3 percent a year, less than the average for healthcare costs overall.


You could say Medicaid is growing unsustainably because of a damaged incentive system. Or you could say our safety net has simply expanded because we need it now more than ever. If Ryan one day cuts it down to size, millions of Americans will certainly fall through. And nobody quite knows what will catch them if they do.