A new Senate bill on Medicaid is another good contribution to today's biggest fight between right and left: capping what government spends on health care versus making open-ended promises and figuring out how to pay later

Ryan Streeter
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Though it virtually went uncovered yesterday, Senators Coburn, Burr and Chambliss introduced a Medicaid reform bill yesterday.

Like Paul Ryan’s budget, the Senate bill would (1) repeal ObamaCare and (2) give states a defined amount of Medicaid funding with fewer restrictions so they could flexibly design their own plans.

Obama and congressional Democrats will demagogue this type of reform as evidence that Republicans don’t care about poor people, want to grow the ranks of the uninsured, and so on.

The Senate bill is certainly an effort to make the program cost less. As Jeffrey Anderson at the Weekly Standard has written, Paul Ryan’s version of this reform would save $201 million every day compared to Obama’s budget. In a program that racked up $22.5 billion in improper payments in 2010, bringing spending levels down is certainly not inconsistent with providing better coverage for low-income people.

State flexibility is the key to better coverage. A fixed amount each year with fewer strings attached allows states to stretch every dollar farther. This is essentially why Republican governors have supported the idea of Medicaid block grants. Governors, even Republicans, don’t usually advocate too loudly for things they think will restrict the flow of federal dollars into their states. In the case of Medicaid, governors prefer dollar-stretching flexibility to promises of more dollars under the status quo.

And this brings us to what we are really debating right now: the difference between fixing federal payments for programs each year, and promises of open-ended funding.

Obama’s budget and health care law do virtually nothing to restrict Medicaid. They do the reverse. ObamaCare uses Medicaid, for instance, as a way to take 16 million uninsured people off the “uninsured list.”

Defined contributions (the Republican idea) versus defined benefits (the Democratic idea) is the fight we’re having, and hardly any fight has greater long-term fiscal implications.

Reform-minded Republicans favor limiting contributions in three key ways at the moment:

1. Medicare: vouchers, or “premium support” as in the Ryan budget, rather than having the federal government tweak benefits each year
2. Medicaid: block grants to states, rather than open-ended promises to keep funds flowing
3. Health care reform: though it’s not as firmly fixed in bills as the previous two, the idea is to fix contributions through a universal tax credit each year, rather than continue with the employer-based health tax benefit we currently have, which distorts the market and drives up costs

These are the bright dividing lines. They sound rather boring, but they are what will drive the public debate about government reform in the near term, and maybe even long term. Hardly ever in our history have such boring-sounding reforms had such dramatic implications.