In GOP's new plan, big health cost shift to elderly

Image: Paul Ryan
House Budget Commitee chairman Paul Ryan, Republican Representative from Wisconsin, speaks to Majority Whip Kevin McCarthy during a press conference on Capitol Hill in Washington on April 5.AFP - Getty Images
/ Source: The Associated Press

Partisan divisions hardened Wednesday around the new House GOP budget, hailed by backers as a sobering correction for the nation's spending binge, and denounced by critics as an attack on health programs for middle-class retirees and the poor.

A report from the Congressional Budget Office provided added fodder for critics, after nonpartisan experts concluded most future retirees would pay considerably more for health care under the GOP approach — which turns Medicare into a voucher-like plan for those now 54 and younger.

The sweeping fiscal plan by House Budget Chairman Paul Ryan, R-Wis., would reduce total federal spending, deficits and debt, saving money for federal taxpayers. But it would be tempered by a cost shift to future retirees.

At hearing on his plan Wednesday, Ryan said that with sky-high deficits, the government needs to limit its mission to things that are truly needed.

"We don't want to turn the safety net into a hammock that lulls people to lives of complacencies and dependencies, into a permanent condition where they never get on their feet," he said.

Rep. Chris Van Hollen of Maryland, the top Budget Committee Democrat, said Republicans are protecting tax breaks for corporations and the wealthy at the expense of the middle class and the poor.

"It doesn't reform Medicare, it deforms and dismantles it," Van Hollen said of the GOP's budget. As for Medicaid, the budget "rips apart the safety net" for poor and older people, he added.

Ryan's plan would put people now 54 and younger in a different kind of health care program when they retire, unlike the Medicare that their parents and grandparents have known. Instead of coverage for a set of benefits prescribed from Washington, they'd get a federal payment to buy private insurance from a choice of government-regulated plans.

"A typical beneficiary would spend more for health care under the proposal," the budget office estimated in its analysis.

Possible political headache for GOP
The findings could turn into a big political headache for Republicans, who relentlessly criticized Medicare cuts in President Barack Obama's health care overhaul as part of their strategy to win back control of the House last fall. According to the analysis, the new GOP plan would leave most of those cuts in place.

Republican leaders want to move the budget quickly through the House, with committee passage expected late Wednesday. It will likely hit a dead end in the Democratic-controlled Senate.

Ryan calls his Medicare idea "premium support." Critics call it the voucher plan.

The GOP budget comes with other major health care changes:

— Obama's health insurance expansion to more than 30 million people who now lack coverage would be repealed.

— Medicaid, the federal-state program that covers low-income and severely disabled people, would be converted into a block grant program that gives each state a lump sum to design its own insurance plans. But the poor no longer would have a right under federal law to health care.

— The coverage gap in the Medicare prescription drug benefit would be brought back. Obama's health care law gradually eliminates the so-called doughnut hole. Ryan's plan repeals that provision, the budget office analysis said.

— Future retirees would see an increase in the eligibility age for Medicare, currently set at 65. Starting in 2022, the eligibility age would rise by two months each year until it reaches 67 in 2033.

— Jury awards in medical malpractice cases would be limited, helping to reduce the practice of defensive medicine by doctors fearful being sued. That would help lower health care costs.

Although Ryan's plan reduces spending by some $5 trillion over the next decade, that still wouldn't bring the federal budget into balance. He also calls for rewriting the tax code and for cuts across a broad swath of spending programs.

Recasting health care programs
The budget would recast health care programs that already cover about 100 million Americans, almost evenly divided between Medicare and Medicaid. That would make Obama's health care overhaul seem like baby steps.

At its most basic level, Ryan's idea would shift more of the risk from rising health care costs from federal taxpayers to individual beneficiaries, medical service providers and states, giving them all a powerful incentive to avoid waste and aim for quality and efficiency. If the theory works, it finally could start to slow the unsustainable rate of rising health care costs.

"Putting patients in charge of how their health care dollars are spent will force providers to compete against each other on price and quality," Ryan's plan says. "That's how markets work: The customer is the ultimate guarantor of value."

But if it doesn't work, as the budget office suggests might happen, future Medicare beneficiaries, providers and states will feel the pain directly. That could send them right back to Washington clamoring for more subsidies.

Changes in Medicare, Medicaid
For seniors already in the program and people within 10 years of retirement, Medicare would remain largely as it is now.

Then, starting in 2022, new beneficiaries no longer would have access the traditional program. Instead, they would get a fixed amount from the government to purchase private insurance.

The voucher would be adjusted so that if a person's health takes a turn for the worse, the federal payment would increase. Wealthier beneficiaries would get a lower subsidy, but lower-income seniors would get extra help with their out-of-pocket costs.

The Medicare proposal will get the widest scrutiny, since that program rivals Social Security as the foundation for a secure middle-class retirement. But the Medicaid changes are equally significant.

They would mean that poor people no longer would have a right under federal law to get health care through Medicaid. Instead, Washington would send each state a lump sum to spend on medical care, nursing homes and other health services.

Advocates are worried that states will not be able to offer vulnerable low-income people reliable protection. Medicaid payments to providers are already at rock bottom levels. States pressed for money in a future economic downturn might reduce payments to doctors and hospitals even more, and they might even freeze enrollment.

That would send more people to the emergency room looking for charity care.

House Republicans set up a politically defining clash over the size and priorities of government Tuesday, unveiling a budget plan that calls for both unprecedented spending cuts and a fundamental restructuring of taxpayer-financed health care for the elderly and the poor.

The plan would slash federal spending by $5 trillion or more over the coming decade. It would leave Social Security untouched but shift more of the risk from rising medical costs from the government to Medicare beneficiaries. It also calls for sharp cuts to Medicaid health care for the poor and disabled and to food aid for the poor.

Dubbed the "Path to Prosperity," the proposal by House Budget Committee Chairman Paul Ryan, R-Wis., also calls for dramatically overhauling the complicated and inefficient U.S. tax code. It would scrap numerous tax breaks and loopholes in exchange for reducing the top income tax rate for both individuals and corporations from 35 percent to 25 percent.

Democrats launched a furious counterassault on the health care proposals.

"They're ending Medicare as we know it. They take away the Medicare guarantee for seniors," said Rep. Chris Van Hollen, D-Md. "All the risk of increased costs will be borne by seniors."

A Congressional Budget Office analysis released late Tuesday also showed Ryan's budget would leave in place roughly $500 billion in Medicare cuts that were part of President Barack Obama's new health care law. Republicans blasted those cuts in their successful campaign to take back control of the House. A spokesman for Ryan said the savings would be plowed back into Medicare.

But the GOP budget would also repeal Obama's plan to gradually close the Medicare prescription drug coverage gap, known as the "doughnut hole."

Plan promises to reach 'primary balance' by 2015
Despite its huge cuts, Ryan's plan still can't claim a balanced budget by the end of the decade because of promises to not increase taxes or change Medicare benefits for people 55 and over. After six years, annual deficits are projected to fall to the $400 billion range, enough to stabilize the nation's finances and prevent a European-style debt crisis that could force far harsher steps, Ryan said.

Under the arcane congressional budget process, the GOP plan is not actual legislation. It does provide a theoretical basis for action, but with Democrats controlling the Senate, the GOP plan serves more to frame the debate heading into next year's election than represent a program with a chance of passing Congress and becoming law.

"For too long, Washington has not been honest with the American people. Washington has been making empty promises to Americans from a government that is going broke," Ryan said. "The debt is projected to grow to truly catastrophic levels in the near future, leading to an economic collapse and a diminished future."

The GOP plan would still add $5 trillion to the deficit over the coming decade, though it promises to reach so-called "primary balance" by 2015, meaning that the budget would be balanced save for interest payments on already accumulated debt. The national debt now exceeds $14 trillion and the White House projects this year's deficit at $1.6 trillion.

Democrats said the GOP plan focused its cuts on seniors and the poor to pay for continued tax cuts enjoyed by the wealthiest.

"Everyone agrees we must cut spending and tighten our belt, but House Republicans have chosen to do so on the backs of America's seniors, not the oil companies making record profits and getting tens of billions in taxpayer subsidies," said Rep. Steve Israel, D-N.Y. "Forcing seniors to pay higher health costs is not the right way to balance our books and it's not the only way to do it."

Ryan's plan would produce a $995 billion deficit next year, compared with the $1.1 trillion projected in Obama's budget proposal. Republicans moved quickly to advance it, scheduling committee action on Wednesday and a vote by the full House for next week.

Stark contrast to Obama's budget
The GOP plan stands in stark contrast to Obama's February budget, which attracted criticism for failing to address federal health care programs whose costs are far outpacing other inflation. Obama's budget ignored most of the most controversial recommendations of his deficit commission, such as raising the Social Security retirement age and curbing future benefit increases.

The GOP plan would fundamentally restructure the nation's biggest health programs in a bold stroke that could make Obama's insurance overhaul look like baby steps.

Obama's law expanded coverage to about 30 million people who don't have it now. Ryan's plan not only would repeal Obama's expansion, but it would recast Medicare and Medicaid, which currently help pay medical bills for some 100 million Americans.

People now 54 and younger wouldn't get to go into the same Medicare program as their parents and grandparents upon retirement. Instead, they would get a voucher-style federal payment to purchase coverage from a choice of regulated private plans.

Poor people would no longer have a right under federal law to get health care through Medicaid. Instead, Washington would send each state a lump sum to spend on medical care, nursing homes and other health services for the poor and disabled. In an economic downturn, a state hurting for cash might decide to stop accepting new applications for Medicaid.

"These sound like technical solutions to budget problems, but what's really starting to be discussed in Washington are fork-in-the-road differences about the future of Medicare and Medicaid," said Drew Altman, president of the Kaiser Family Foundation, a nonpartisan information clearinghouse on the health care system. "Should we stick with the traditional Medicare program where you have guaranteed benefits? Or should the benefit depend on the plan you get in the marketplace?"

At its most basic level, Ryan's plan would shift more of the risk for rising health care costs from federal taxpayers to individual beneficiaries, medical service providers and states, giving them all a powerful incentive to cut waste and improve quality. If the theory works, it could finally start to slow the unsustainable rate of rising health care costs.

"We're actually saving Medicare and Medicaid, making them solvent for future generations," Ryan said. "And, yes, we're cutting spending. We're cutting a lot of spending, because government is spending way beyond its means."

The GOP's 2012 budget blueprint was unveiled amid a separate battle between Republicans and the Obama administration over smaller but more immediate spending cuts for the current, 2011 budget year.

Compared with Obama's latest budget proposal, Ryan's plan would cut $6.2 trillion over 10 years. But measured against Congressional Budget Office estimates that assume permanent extension of Bush-era tax cuts, Ryan's budget would cut $5.8 trillion. Obama and Ryan each claim $1 trillion in savings from the unrealistic assumption that overseas military operations will soon cost just $50 billion a year — less than half the amount requested by Obama for next year. Ryan endorses Obama's Pentagon requests, which provide for small increases over current levels.

Sidestepping Social Security, extending tax cuts
Ryan's proposal largely sidesteps Social Security, offering a vague requirement that the president and Congress develop a plan to save the system "in the event that the Social Security program is not sustainable." The trustees who oversee Social Security have been projecting for years that the program will run out of money by about 2037.

Last year, Social Security paid out $37 billion more in benefits than it collected in payroll taxes, the first such deficit since the system was overhauled in the 1980s. The program is instead tapping into $2.5 trillion in accumulated savings from previous surpluses.

On taxes, Ryan would rescind all tax increases in both the new health care law and in Obama's proposed 2012 budget. He would extend Bush-era cuts for taxpayers at every income level, including the wealthy. He would reject Obama's call to increase taxes on oil and natural gas companies, which were included in the president's proposed 2012 budget.

He also embraces fundamental tax changes to set a top rate of 25 percent for both individuals and corporations, down from the current 35 percent. That would mirror a proposal by Rep. Dave Camp, R-Mich., chairman of the tax-writing House Ways and Means Committee, to create lower rates by weeding out numerous tax breaks and loopholes enjoyed by both individuals and corporations.

Ryan's plan also would overhaul the way the government gives out food stamps, a program that has grown from $18 billion in 2001 to more than $80 billion this year. It would cap the amount of money each state can receive and make the aid contingent on work or job training. In addition, it would make unprecedented cuts to the operating budgets of domestic agencies, slashing Obama's requests for education, law enforcement and homeland security, along with highway building.

Noting that this year's net farm income is forecast to be the second-highest in the past 35 years, the plan also proposes slashing farm programs by $30 billion over 10 years by cutting crop insurance and certain subsidies paid to farmers regardless of crop price or yield.