Ryan's FY 2014 Budget Blueprint Would Turn Medicare Into Premium Support System

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House Budget Committee Chairman Paul Ryan (R-Wis.) March 12 unveiled his fiscal 2014 budget proposal that would turn Medicare into a premium support system, make Medicaid a block grant program, and repeal the Affordable Care Act.

The blueprint, which mirrors plans Ryan put forth the past two years, is expected to be considered by the committee March 13.


“Balancing the budget is a means to an end. It's a means to a healthier economy, a pro-growth society, a pro-growth economy that delivers opportunity.”  


--House Budget Committee Chairman Paul Ryan

The budget resolution is intended as a framework for legislative action but is not binding on committees or appropriators. It is not expected to advance in the Senate, which is controlled by Democrats. Senate Democrats are crafting their own budget resolution.

The competing budgets to be released by congressional Democrats, Republicans, and the White House likely will further delineate the differences between the parties about the best ways to reduce federal spending and the deficit while strengthening popular social programs like Medicare.

President Obama March 12 began a three-day series of meetings with members of the House and Senate to gauge interest in reaching agreement on a comprehensive budget package this year (see related article).

Obama's budget is expected to be released in early April.

Balance Budget in 10 Years

Ryan told reporters at a briefing that his budget targets wasteful federal spending, repairs the safety net, fixes Medicare, and will help foster a healthier economy. He said the proposal would balance the federal budget in 10 years, but Democrats said the plan relies on budget gimmicks to reach its fiscal goal.

“Balancing the budget is not simply an act of arithmetic, not just getting expenditures and revenues to add up,” he said. “Balancing the budget is a means to an end. It's a means to a healthier economy, a pro-growth society, a pro-growth economy that delivers opportunity. That is first and foremost why we are doing this."

Ryan said his proposal would reduce federal spending by $4.6 trillion over 10 years, including repealing ACA (saving $1.8 trillion); cutting Medicare (saving $129 billion in addition to keeping $716 billion in current law cuts in ACA); and block-granting Medicaid (saving $756 billion).

“Most Americans think we're on the wrong track,” the budget proposal stated. “By living beyond our means, we're stealing from the next generation. By promising a higher standard of living today, the federal government is guaranteeing a lower standard of living tomorrow.”

Financial Burden Shifted to Seniors

White House spokesman Jay Carney told reporters March 12 that Obama “profoundly disagrees” with the Ryan budget.


Congressional Democrats criticized the budget, saying it would cut too much from social programs while not asking anything from the wealthy in the form of higher taxes.  


“On the entitlement side, voucherizing Medicare is an option the public, I think, overwhelmingly … rejected last year, rejected the year before, does not believe is good policy,” Carney said. “But beyond public disapproval, it does nothing to deal with the fundamental problem here, which is rising health-care costs. It actually exacerbates that problem but shifts the burden from the Medicare program to seniors, asks them to pay the difference. And that doesn't obviously keep true to the promise or the guarantee that the Medicare program represents.”

Congressional Democrats criticized the budget, saying it would cut too much from social programs while not asking anything from the wealthy in the form of higher taxes.

“The Republican budget would again end the Medicare guarantee by turning it into a voucher program, and it predicates its savings on a repeal of the Affordable Care Act that both parties know is not realistic,” said House Democratic Whip Steny H. Hoyer (D-Md.). “Even then it must rely on magic asterisks that hide trillions in unexplained savings. The American people want a budget that is honest about our fiscal challenges, which is why they rejected this Republican approach to budgeting last November. The American people want a budget that works.”

The budget plan would turn Medicare into a premium support system beginning in 2024 for those born in 1959 or later. Premium support is highly controversial. Supporters say it would inject more competition into Medicare, thus lowering program costs. Opponents have countered that the federal payment to seniors likely would not keep track with health care cost inflation, and thus seniors would end up paying more for their care over the years.

Medicare Cuts

The blueprint also keeps in place the $716 billion in Medicare provider spending cuts included in ACA that Republican presidential candidate Mitt Romney and his vice presidential nominee, Ryan, criticized during the campaign.

Ryan told reporters March 12, however, that Medicare was cut by Obama to help fund ACA, while the cut in Ryan's budget would help put Medicare on a better financial footing.

The budget also would raise Medicare's current eligibility age of 65 by two months a year until it reaches 67 in 2024, saving about $129 billion over 10 years.

Regarding premium support, the budget says that in 2024, Medicare would provide beneficiaries a choice of private health insurance plans that would compete with traditional fee-for-service on a new Medicare Exchange, similar to the health insurance exchanges established under the health care reform law.

Medicare would provide a premium support payment “to pay for or to offset the premium of the plan chosen by the senior,” the document said.

Bidding Process

Under the proposal, plans would compete via an annual bidding process to determine the federal contribution to premium support.

The benchmark plan would be the second-least-expensive private or fee-for-service plan, whichever cost less, the budget proposal said. “If a senior chose a more expensive plan than the benchmark, he or she would pay the difference between the subsidy and the monthly premium,” it said. “And if a senior chose a plan less expensive than the benchmark, he or she would receive a rebate for the difference.”

Medicare would offer higher payments depending on a patient's health history and cost of living, the document said. It also would require private plans to cover at least the actuarial equivalent of the benefit package offered under fee-for-service, it added.

Premium support subsidies would rise based on the outcome of the bidding process, but per capita costs could not exceed nominal gross domestic product growth plus 0.5 percent, the document said.

The budget would require health plans in the Medicare exchanges to offer guaranteed issue and community rating, and the federal contribution would be risk-adjusted so the sickest seniors would receive more premium assistance, the budget said.

Medicaid Changes

In addition to turning Medicaid into a block grant program, Ryan's proposal would reduce Medicaid spending and that of some other health programs by $756 billion over 10 years.

Block-granting the program, which the document said would give states more flexibility, would involve “converting the federal share of Medicaid spending into an allotment tailored to meet each state's needs, indexed for inflation and population growth.”

Federal mandates prevent states from adopting innovative ways to cover Medicaid recipients, the budget said. “Such a reform would end the misguided one-size-fits-all approach that has tied the hands of state governments,” the budget said.

Under the plan, Medicaid and the Children's Health Insurance Program would be combined. The consumer advocacy group Families USA said the Medicaid changes in the budget would “cause enormous harm to seniors with chronic health conditions, children needing to see a doctor, and low-wage working families by taking a sledgehammer to the Medicaid program and, once again, making it the largest target for budget cutbacks.”

“The House Republican plan to decimate Medicaid flies in the face of actions by key Republican governors who have extolled, and proposed to expand, their programs,” the group said.

Ryan told reporters he believes the ACA will “destroy” the health care system and “is going to collapse under its own weight.”

“Obamacare is a fiscal train wreck,” he said.

With Obama re-elected and Democrats retaining control of the Senate, ACA opponents now have little chance to bring down the law. But Ryan said the outcome of the presidential election will not deter House Republicans from putting forth their own ideas on health care and continuing to fight to repeal ACA. “We're not going to give up," he said.

By Steve Teske  

The budget proposal is at http://budget.house.gov/uploadedfiles/fy14budget.pdf.

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