LABRADORIES OF DEMOCRACY:

Under its block-grant system, the federal government of Canada provides provincial and territorial governments with a single large sum every year to fund Medicare, and they administer the program according to a set of baseline requirements. Once they meet the federal baseline, however, they are free to innovate and get the most for their residents' money.

By fixing the maximum federal contribution, block grants offer Canada's provincial and territorial governments far better incentives to reduce the cost and improve the quality of the medical services they purchase. When costs rise, the provinces that run the programs are forced to pay 100 percent of the added costs at the margin, unlike in the U.S., where state governments pay an average of 43 cents at the margin for every dollar of added Medicaid expense.

Decentralized administration gives provinces the flexibility and the accountability to design their programs according to their needs and particular local challenges, rather than federal "one-size-fits-none" imposition. It also creates opportunities for innovation. By sharing notes, provinces and territories learn from one another and improve their Medicare programs.

Canada has been using block grants for 35 years. After several years of ruinously high growth in Medicare expenses during the 1970s, their federal government abandoned a 50-50 cost-sharing plan in 1977. Through the Canada Health Transfer program, which gives states some money directly and some through tax-shifting agreements, Canadian provinces and territories receive equal per capita aid, regardless of actual health care expenditure.

Growth in aid has varied over time, but starting in 2017 it will match the three-year moving average growth rate of nominal gross domestic product -- which, on rough average, runs at 5 percent annually -- with an unconditional floor of 3 percent annual growth.

By comparison, Medicaid expenditure in the U.S. has grown rather consistently at 10 percent annually for decades, and nominal per-enrollee Medicaid expenditure has risen at roughly 8 percent annually.

The result in Canada has been successful cost control -- indeed, even at the aggressive scale Ryan anticipates for Medicaid. Canada spends far less on health care than its southerly neighbor: 10.9 percent of Canada's gross domestic product, or $4,196 per capita, versus 16.2 percent of GDP, or $7,410 per capita, in the U.S. The rate of health-care cost inflation is less problematic: a net 65 percent rise from 1993 to 2005 in Canada versus a 90 percent increase in the U.S over the same period.

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