This article originally appeared in Forbes.com: link on September 4, 2007.
The promises made by our current Federal entitlement programs would require Federal taxes and spending to double by 2040 as a percent of gross domestic product. The Democrat response: Add new entitlements. Congressional Democrats are moving to double Federal spending on the State Children’s Health Insurance program (SCHIP), quite explicitly on their way to the biggest mega-entitlement of all, national health insurance.
Republicans need to go on offense with positive entitlement reforms, and take their case to the people. Does America really want to double or even triple Federal taxes relative to GDP?
Republicans should propose to block grant the entire Medicaid program back to the states, along with SCHIP, just as they did with the highly successful 1996 reforms of the old Aid to Families with Dependent Children (AFDC) program.
The Federal government sent its share of spending on that program in a block grant back to the states with the funds to be spent on a new program designed by each state based on required work for the able-bodied. The key is that the block grant is finite, not matching. If the state program costs more, the state must pay those costs itself. If the state innovates and saves money, the state keeps the savings. With these new incentives, welfare rolls under the old program declined by almost 60% nationwide.
Send Federal spending on Medicaid and SCHIP back to the states under the same finite block grant formula. Leave the states free to decide exactly what services are covered under their new state-designed programs, and at exactly what income levels, with a work requirement for the able-bodied.
Limit Federal spending on these block grants to grow no faster than the rate of growth of GDP, producing enormous long-run savings.
Peter Ferrara is director of Entitlement and Budget Policy for the Institute for Policy Innovation, and general counsel of the American Civil Rights Union.