The recent economic downturn is forcing states to “scale back safety-net health-coverage programs,” USA Today is reporting. Medicaid, which eats up 17 percent of state budgets is on the chopping block and millions of low-income adults and children are in danger of losing their health insurance.

Sen. John McCain’s solution is to push even more people off the rolls. As the Wonk Room reported, McCain recently proposed cutting $1.3 trillion from Medicare and Medicaid to plug the $1.3 trillion funding gap in his budget-neutral health care plan. And while the campaign has argued that McCain will make up the shortfall by finding trillions of dollars worth of “savings,” most observers disagree.

CAPAF’s very own Peter Harbage, for instance, who conducted the initial analysis of the effects of McCain’s cuts on both Medicare and Medicaid had released a new report documenting the consequences of McCain’s proposed “savings.”

According to Harbage, “the only way for Sen. McCain to achieve his goal is to slow Medicaid growth to 5.5 percent per year –well below what is would take to maintain enrollment growth and match the rising costs of medical care.” To accomplish this, McCain would have to lock in federal spending limits “through so called block grants, which deliver federal funds according to pre-set budget limits rather than on a needs basis, as is now the case.”

In other words, as unemployment creeps up and more Americans lose their health insurance (a 1 percent increase in unemployment resulted in 1 million more people enrolling in Medicaid and SCHIP and another 1.1 million more people uninsured), the federal government will sit on its hands, offering no extra Medicaid funding. Here are the consequences of McCain’s one-size-fits all block grant:

- Total program cut of $738 billion over 10 years

- 29 states could lose more than $5 billion in federal Medicaid spending over 10 years

- Every state could see a reduction of more than $1 billion in total Medicaid spending (federal and state) over 10 years

By limiting average annual growth to 5.5 percent — compared to the estimated 5.9 percent growth rate needed to keep up with medical inflation and Medicaid enrollment growth, states will have to make cutbacks in “program, eligibility and benefits or both.”

Today, the Center for American Progress and the Institute on Medicine as a Profession released The Health Care Delivery System: A Blueprint for Reform, a wonkish compilation of policy recommendations for reforming the health care delivery system.

The book, which assumes the implementation of a national heath care system, transcends popular campaign rhetoric to offer policy makers concrete solutions for transforming the health care system into an organization that places patient care ahead of insurer profit.

The questions are this:

- What specific measures can Congress and the next President adopt to transform the American health care system to promote quality, efficiency, patient-centeredness, coverage and wellness?

- What can we do to build up the health care infrastructure (workers, tools, and knowledge), fix the health organization (in which doctors don’t work as integrated teams to coordinate patient coverage), improve the quality of care, and encourage patient participation in the management of chronic diseases?

The answers, while complex and numerous, all rest, to one extent or another, on payment reform.

Most payment today is fee for service, “meaning that each service a doctor provides is paid for separately.” Doctors are discouraged to refer patients to complimentary providers — undermining coordinated care and holistic treatment initiatives — because it does not affect what they receive for their services. The more services doctors provide, the higher their compensation, and high-quality services are not compensated any more that poor quality services. Our payment system rewards action, not health management.

Moreover, Medicare reimburses specialists at a higher rate than primary care physicians and the number of family doctors is plummeting. Solo doctors don’t have a monetary incentive to treat patients in an efficient and holistic manner and in some cases even lose money. Doctors don’t have a financial incentive to adopt electronic records because using paper files allows them to perform more procedures and receive greater compensation. Why eliminate profitable redundancy?

The financial incentives are plain backwards. The current payment system discourages the kind of organization that values patient well-being above physician or insurer profit. To that end, the blueprint for reform recommends a better alignment between payment and outcome and a system that more accurately reflect relative costs of providing different services.

To read the entire blueprint, click here. Today, CAP also hosted an event on the blueprint featuring prominent health care experts. Find out more here.