Cato’s Michael Cannon is much more optimistic than Shikha Dalmia concerning the potential for cost savings under Paul Ryan’s Medicare block grant proposal. Cannon notes that Ryan’s proposal would provide much needed incentives to governors to better police widespread Medicare fraud:
Fraud and abuse have become so prevalent in Medicaid largely due to the perverse incentives created by the matching-grant system.
Combating Medicaid fraud and abuse is currently a low-return proposition for state officials. Providers inevitably chafe under the additional paperwork and investigations necessary to police fraud. Currently, if a state inflicts enough of this political pain to eliminate $1 of fraud, it only keeps 20 to 50 cents; the rest goes back to Washington. As a result, governors quite rationally make policing fraud and abuse too low a priority.
Under block grants, states would keep 100 percent of the savings from rooting out fraud and abuse, which would encourage states to spend their Medicaid dollars wisely, reduce the cost of the program, and enable states to do more with fewer resources.
I am very interested in seeing any historic evidence that when government is forced to do more with less, this does in fact lead to more efficient processes. This is also the premise in a recent Phoenix Center study which suggests that making even small reductions in regulatory agencies’ budgets would lead to large gains in economic output and private-sector job growth, without necessarily compromising regulatory efficiency. Please post any relevant evidence in the comments section!