“The Ryan Plan” & The Debt Ceiling

In April of 2011, House Representative Paul Ryan, Republican from Wisconsin, introduced a 2012 Federal Budget aimed to reduce the country’s budget deficit.  Representative Ryan’s budget proposal is titled “Path to Prosperity” and would cut federal spending by 6 billion dollars over the next decade.  Yes, that is a whole lot of money! You might be wondering why I am bringing this Budget Proposal up now.  Currently, the United States government is on an August 2^nd, 2011 deadline, when the nation’s debt ceiling will be reached.  Most people agree we must raise the debt ceiling in order to avert negative economic consequences.  However, raising the debt ceiling requires a Congressional vote, and many Congressmen feel that federal spending is out of control.  In order to win votes to raise the debt ceiling, Congress has resorted to bartering: conservatives are offering a vote to raise the debt ceiling, but only if federal spending is curbed. Healthcare spending is one of the largest and fastest growing federal expenditures and much focus has landed on cutting back this sector.  Thus, reforming Medicare and Medicaid have become part of the compromise to raising the debt ceiling.  One of the main ways that the Ryan budget proposes to cut federal spending is by reforming Medicare and Medicaid. While the Ryan Budget Proposal may not pose a real threat in that it will be passed as law, the themes throughout the document in how to approach health and financial reform are common in current Congressional debates.  In this blog post I will share with you what these ‘reforms’ mean for Medicare and Medicaid recipients.

Medicare Reform in the Ryan Plan

Let’s start with Medicare Reform.  The Path to Prosperity suggests that the Medicare system should be completely reformed, and that Medicare payments would no longer be directly billed to physicians, hospitals or doctor’s offices.  Instead, Medicare recipients (including individuals 65 years and older) would purchase private health care services from numerous insurance company options on a healthcare exchange.  The federal government would subsidize a certain amount of health care expenditures—essentially older adults and other Medicare beneficiaries would be given a voucher for health care expenditures.  Outside of the voucher payments, or health care subsidies, health care expenses would be the responsibility of the individual. Well, I am not sure what’s to like about this reform—the proposed cuts to the Medicare program shift financial responsibility from the federal government to older adults to deal with themselves.  There is no guarantee that these vouchers will grow in value as quickly as healthcare costs are projected to rise.  And let’s not forget: Medicare is currently more efficient than the private health insurance market.  If we privatize Medicare, like the Ryan proposal suggests, health care costs will actually increase because private health care insurance is more expensive than Medicare.  I understand the need to reform Medicare, but the Path to Prosperity merely shifts the cost burden to Medicare beneficiaries.

Medicaid Reform in the Ryan Plan

Representative Ryan’s proposal to reform Medicaid would mean turning Medicaid into a block grant program.  What exactly does that mean?  Right now Medicaid is a matching program: states spend a certain amount of money on Medicaid services and the federal government matches this amount.  The Path to Prosperity proposes to change this financing mechanism and give each state an annual lump sum of Medicaid dollars.  This offers the state the flexibility of designing its Medicaid program to fit its unique population—setting its own eligibility and standards.  It is important to note that Medicaid is the largest payer of long-term care services, which is quite important to over 9 million older adults (and this number is growing with the population growth of older Americans). However, block-granting Medicaid is a dangerous proposal when it comes to ensuring that health care is accessible and affordable.  With a block grant, states are given a finite amount of money and looser guidelines of how to use that money.  With the current funding mechanism, the federal government matches states’ spending in an on-going manner as Medicaid services are rendered.  What would happen if more people were eligible for Medicaid and needed to access services, as is typical in an economic downturn?  In a block-grant funding situation, more people would be seeking services paid from a fixed ‘block’ of money. Then what? How would the state decide which services to provide, or who to serve?  Would the state have to raise taxes in order to generate enough revenue to provide services? Would the state simply start denying coverage? Answers to these questions would be the state’s responsibility. What we do know is that the cost growth of Medicaid is rising faster than the Ryan proposal’s Medicaid block-grant inflation would account for.  This means that the block grant funding would not keep pace with health care costs, leaving states shouldering the Medicaid cost burden.  Once again, costs are shifted from the federal government to the individual; in this case the individual as seen as a citizen of one of our states.

What About the Affordable Care Act?

You might be thinking what about the Affordable Care Act? The Affordable Care Act or ACA is the sweeping health reform bill that passed in March of 2011.  The ACA does contain reforms that will slow the cost curve of Medicare spending per beneficiary.  This is good, making Medicare more financially solvent over a longer time period.  It is, however, only a start because as the baby boom generation ages, even if Medicare per beneficiary costs are reasonable, the number of beneficiaries will rise drastically.  Currently there are about 49 million individuals on Medicare—fast-forward to 2035 and that number jumps to over 85 million.  This population growth is an added challenge to effectively reforming the Medicare system.  So the ACA is part of the solution, but it will not solve our Medicare solvency issues completely.  It’s worth noting that the Ryan budget suggests repealing the ACA.

Do You Want to Be a Part of the Conversation?

Here’s the easy part! If you want your voice to be heard, call your Senator or Representative in D.C.  If you agree or disagree with cutting Medicare and Medicaid; if you like or dislike the Affordable Care Act—let your elected officials know.  The threat right now is not the Ryan Budget Proposal, but threats to Medicare and Medicaid.  Over the past few weeks our Congressmen’s offices are receiving many calls and emails on the debt ceiling.  It is important for our elected representatives to know what our opinions are, as constituents. To find your House Representative click here: https://writerep.house.gov/writerep/welcome.shtml To find your state’s Senators clicker here: http://www.senate.gov/general/contact_information/senators_cfm.cfm Questions? Thoughts? Comments? Please share below. Special thank you to Bridget Murtha for editing this article, and to ColinDunn on Flickr.com for the image.