Image: Paul Ryan, Jeb Hensarling, Diane Black
J. Scott Applewhite  /  AP file
House Budget Committee Chairman Paul Ryan, R-Wis., has proposed a far-reaching plan to reduce future spending on entitlement programs.
By Tom Curry National affairs writer
updated 5/6/2011 12:58:07 PM ET 2011-05-06T16:58:07

The battle which has raged over the past several weeks over House Budget Committee Chairman Paul Ryan’s debt-cutting plan always had an air of unreality about it.

It was obvious well before April 5, the day Ryan released his blueprint, that it had no chance of being approved by the Democratic-controlled Senate this year.

It did pass the House on a near party-line vote — a vote Democrats will be quite happy to use as a cudgel against Republicans just as the GOP used last year's vote on the health care overhaul as a weapon against Democrats in the 2010 campaign.

Typical of the rhetoric was a statement sent out by the Democratic Senatorial Campaign Committee: “UNBELIEVABLE! JEFF FLAKE VOTES TO END MEDICARE” — a reference to Rep. Jeff Flake, R-Ariz., who is running for the Senate seat being vacated by Republican Sen. Jon Kyl, and who voted for the Ryan plan.

This week Ryan acknowledged that his plan is stymied for now. He told a Bloomberg News breakfast in Washington that he didn't expect a "grand slam" agreement that would include Medicare reform before Congress votes to raise the federal debt limit. "My hope at this moment is to get a single or a double," he said.

Ryan's plan, if enacted, would immediately affect Medicaid — not Medicare.

But Democrats focused most of their fire on Ryan's Medicare redesign — which would affect none of today’s senior citizens — and said little about his Medicaid revamp which would affect many of today’s seniors.

What explains this?

The basics of Medicare v. Medicaid
With the names of the two programs so confusingly similar, it helps to recall the basics.

The programs — which together account for 20 percent of federal spending — serve some of the same people, but they are quite different:

  • Medicaid is the federal-state program that pays the medical bills of more than 50 million poor, disabled and elderly people.
  • Medicare is the federal program that pays the medical bills of 40 million people aged 65 and older, whether they’re rich or poor.
  • Medicaid is means-tested: your income must fall below a certain threshold in order for you to get benefits.
  • Medicare isn’t means-tested, although the program requires wealthier people to pay higher premiums for their benefits than middle-income and low-income people do.

Medicaid — unlike Medicare — is financed by general federal and state tax revenues, not by a dedicated tax.

Medicare is financed, in part, by a dedicated payroll tax, so that many retirees think they "paid into the system" and are simply "getting back what they paid in" once they become eligible to collect benefits at age 65.

Video: One-on-one with House Budget Chairman Paul Ryan (on this page)

In creating Medicare, Congress deliberately designed it so that “middle-class people would view this as their earned right,” said Colleen Grogan, a health care policy expert at the University of Chicago.

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And that perception of an "earned right" explains the Democrats' strategy in focusing most of their fire on Medicare, not Medicaid.

Ryan plan reduces Medicaid outlays
As Ryan explained over and over again, his proposal would not affect the Medicare benefits of anyone now in the program, or of anyone eligible for Medicare until 2022.

Starting in 2022, Ryan would scrap Medicare's open-ended payment of most medical bills. Instead he'd use federal money to subsidize seniors' purchase of insurance, with bigger subsidies for poorer people and smaller subsidies for wealthier people.

But the Medicaid changes would be enacted immediately, possibly reducing poor recipients’ access to health care or raising their costs.

Ryan would convert the Medicaid matching payments that the federal government now makes to the states into grants. The grants would grow over time to keep pace with consumer prices and population growth, but the net result would be the states bearing more of the Medicaid burden.

Video: Power point: Paul Ryan pitches budget overhaul (on this page)

According to an analysis by the Congressional Budget Office, enacting Ryan's proposal would mean that people on Medicaid “could face more limited access to care,” and “if states reduced benefits or eligibility levels, beneficiaries could face higher out-of-pocket costs….”

And that would happen almost immediately after enactment, not in 2022.

Affecting the elderly
Many people see Medicaid as a program for low-income single mothers and their children.

But in fact most Medicaid spending goes to care of the elderly and disabled, not to single moms and their kids. More than eight million people over age 65 rely on the program, typically people in nursing homes or those getting long-term care from a visiting nurse.

Oddly enough, Medicare, which is supposed to take care of those over age 65, does not cover most long-term care, such as in a nursing home or assisted living facility. But Medicaid does cover such care.

Although they may not have thought about it when they were 40, many older people -- without their adult children living nearby — will end up in such facilities. Grogan said people over age 65 “don’t know how important Medicaid is until they need long-term services.”

She added, “If you look at the elderly who end up relying on Medicaid, a lot of them were middle-class people their entire lives and they have children who are solidly in the middle class.”

Long-term care is so expensive that “people spend down their resources and do estate planning” — thus shielding some of their assets — so that they can qualify for Medicaid, she explained. “There’s absolutely no way a middle-class family can save adequately for the expenditures that are needed if you have a parent who needs that type of care.”

Robert Saldin, a health policy expert at Harvard University, said Medicaid “is widely misunderstood and thought of as merely a program for the poor. In reality — and for better or worse — Medicaid has become a broad-based program with two-thirds of its spending going to the elderly and disabled. Many of the elderly on Medicaid spent their lives in the middle-class before they had to pay for a nursing home. But Medicaid's reputation hasn't caught up with this reality.”

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Video: Power point: Paul Ryan pitches budget overhaul

  1. Closed captioning of: Power point: Paul Ryan pitches budget overhaul

    >>> meanwhile, the young republican congressman who has become the party's point person on the federal budget took his plan on the road today, directly to the people in his home state of wisconsin. nbc's kelly o'donnell was on the trail along with him. she's with us tonight from kenosha. kelly , good evening.

    >> reporter: hi there, brian. well, from town to town we saw paul ryan get an earful from voters here. the powerful house budget committee chairman is fighting for his plan to reduce the country's debt. during this visit he's got 19 meetings. four of them just today.

    >> hey, everybody.

    >> reporter: he's the republican number cruncher.

    >> we put our budget on a path to not only balance but to pay off the debt.

    >> reporter: 41-year-old father of three paul ryan has represented wisconsin more than a dozen years. suddenly he's a lightning rod .

    >> paul ryan looks like a nice young man.

    >> reporter: targeted by liberal groups.

    >> ending medicare so millionaires can get another tax break in.

    >> reporter: a laugh line on cable.

    >> we do tax the top. the -- [ boos ]

    >> that is paul ryan , the architect of the plan, being booed.

    >> reporter: today ryan claimed his critics don't get it.

    >> it's people who don't understand what we're doing with medicare . what i find is there's a lot of demagoguery and distortion occurring.

    >> reporter: armed with a powerpoint sales pitch, ryan is traveling his district to explain and defend his controversial budget overhaul.

    >> we say leave medicare intact for current seniors as it is today, reform it for the next generation so that it doesn't go bankrupt --

    >> reporter: under his plan those under 55 would shop for private health insurance and get federal money to pay part of the premium based on financial need, a drastic change.

    >> my concern is that my 48-year-old son is not going to have medicare .

    >> reporter: that scares and angers many voters in ryan 's back yard.

    >> do not renew the bush tax credit for the wealthy. [ cheers and applause ]

    >> reporter: ryan is strongly backed by republican leaders, and many here say ryan is right and the political risk he's taking is worth it.

    >> i admire what he's doing because he's taking it on.

    >> i can go do something else with my life. i sleep very soundly knowing that what i'm trying to do is help fix this country's problems.

    >> reporter: and at one of the stops there was a standing ovation for ryan . at a couple of the events today there were so many people who wanted to get in but not enough room. fire marshals had to turn them away. brian?

    >> kelly o'donnell in kenosha tonight. kelly , thanks for that.


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