Tags: Barack Obama, healthcare costs, medicare, medicare medicaid

Republican Budget Plan Targets Medicare With $4 Trillion in Total Spending Cuts

By , Associate Editor, Money Morning •

House Republicans will release their 2012 budget plan today (Tuesday), proposing more than $4 trillion in cuts over the next decade and trimming billions of dollars from Medicare expenses.

House Budget Committee Chairman Rep. Paul D. Ryan, R-WI, prepared the spending outline for the fiscal year beginning Oct. 1.

Ryan told Fox News Sunday that U.S. President Barack Obama was "punting on the budget and not doing a thing to prevent a debt crisis, which every single economist tells us is coming sooner rather than later in this country."

He said the plan went beyond the recommendations of President Obama's debt commission because they kept spending too high to significantly reduce the deficit.

Ryan's proposal reshapes the Medicare program to tackle its soaring costs. Medicare cost $396.5 billion in 2010 and is projected to rise to $502.8 billion in 2016.

"You have to address the drivers of our debt," Ryan told Fox News Sunday. "We need to engage with the American people on a fact-based budget, on stopping politicians from making empty promises to people and talk to the country about what is necessary to fix these problems."

The Republican proposal converts Medicare into a "premium support system" for Americans under the age of 55. Once they reach the eligibility age of 65, they would choose from an array of private insurance plans. The U.S. government would pay about the first $15,000 in premiums, with payment amounts varying based on participants' economic and health status. No one who is now 55 or older would be affected by the proposed changes.

Medicare currently pays most healthcare costs for 48 million elderly and disabled Americans, but politicians in both parties have said that can't continue for the government to successfully rein in spending. In order to make any progress on the budget deficit, something has to be done about entitlement programs Medicare, Medicaid and Social Security, which make up 60% of the budget.

"There is nobody saying that Medicare can stay in its current path," Ryan said. "We should not be measuring ourselves against some mythical future of Medicare that isn't sustainable."

Ryan said this plan would encourage competition among healthcare providers and keep costs down. He said his proposal was different than the voucher program heavily criticized by Democrats, and instead offers the government subsidy to the plan, not the consumer.

"It doesn't go to the person, into the marketplace," said Ryan. "It goes to the plan. More for the poor, more for people who get sick, and we don't give as much money to people who are wealthy."

The Republican budget plan also changes Medicaid into a block grant program that gives state governors more flexibility in handling the money. Medicaid is expected to cost the government $275 billion in 2011, and the Congressional Budget Office (CBO) projects that number to double by 2021.

Ryan said spending for Medicare and Medicaid will still increase each year with his plan, but at a slower rate than it does now.

The GOP plan is not expected to propose much about Social Security spending, another touchy area in Congressional budget negotiations.

People familiar with the proposal said it will call for a tax system overhaul, cutting corporate and personal taxes to a top rate of 25%, down from 35%. It also is expected to allow a temporary change for U.S. multinationals to bring home up to $1 trillion in profits currently held overseas at a reduced tax rate.

The plan also cuts discretionary spending to 2006 levels, and puts a cap on government spending relative to the size of the economy. The ratio hit 25% of gross domestic product (GDP) in 2009, and President Obama's budget proposal capped spending around 23%. Ryan said he wanted to set a cap closer to 20%.

The plan will face heated opposition from the Democrat-controlled Senate. Democrats favor tax revenue increases to reduce the budget deficit, and criticize proposals that hurt Americans relying on government aid.

"All this does is shift the risk and burden of rising health-care costs to seniors on Medicare," said Rep. Chris Van Hollen, D-MD, the top Democrat on the House Budget Committee, about the Republican budget plan. "You're on your own with the insurance industry."

The CBO said a similar Medicare plan Ryan proposed last year would lead to weaker benefits and steeper premiums.

Ryan said Democrats would likely use his proposals as a "political weapon to go against [Republicans]."

"But they will have to lie and demagogue to make that a political weapon," Ryan said.

While Republicans get ready to pass their 2012 budget proposal, they have yet to reach an agreement with Democrats over the 2011 budget and are quickly approaching the April 8 deadline.

U.S. Sen. Charles E. Schumer, D-NY, told ABC News' "This Week" that progress was being made, but he could not guarantee lawmakers would prevent a government shutdown.

Schumer has been criticized for pushing for a government shutdown since reporters overheard him last week advising colleagues to call Republican spending cuts "extreme and draconian."

"The subtext of this is, the only way we can avoid a shutdown is for (House Speaker John) Boehner to come up with a reasonable compromise and not just listen to what the Tea Party wants," Schumer said during a phone news conference, apparently unaware reporters were on the line.

The House passed a budget in February outlining $61 billion in cuts, and Democrats have said they will agree to $33 billion in cuts. But the two parties have yet to reach a deal on the amount or the areas to trim.

Democrats want Republicans to reduce spending on Agriculture, Treasury and Justice Department programs instead of discretionary accounts. Democrats argue that discretionary spending includes programs that shouldn't be cut, like tuition aid, cancer research, and veteran assistance, but Republicans are resisting.

"We want real spending cuts," House Speaker John A. Boehner, R-OH, said last week. "We are dealing with the discretionary part of the budget."

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