Shaping GOP entitlement reform plans

In the coming recess week, House Budget Committee Chairman Paul Ryan (R-Wis.) and staff will be preparing options to present to colleagues for the 2012 House budget resolution. 

The draft resolution is to be released and marked up in committee the first week of April.

The budget resolution is to contain some policy changes to Medicaid, Medicare and Social Security, according to the committee. 

{mosads}The committee is expected to look especially hard at four documents when forming the recommendations: the April 2009 Republican alternative budget resolution produced under Ryan when the Democrats were in charge, Ryan’s own Roadmap for America proposal, the recommendations of the Bipartisan Policy Center and the recommendations of the president’s fiscal commission.

The way those plans deal with entitlements is summarized below:

Fiscal 2010 Republican Alternative Budget (April 2009)

This plan is more of a consensus document than the plan authored solely by Ryan, making it a possible model for a new resolution that attracts full GOP caucus support.

Medicaid: The program is currently a joint federal-state entitlement for the poor. The proposal converted federal Medicaid matching payments for acute care into a block grant to the states in the short term, as a prelude to converting the entire federal share to a grant to the states in the long term. The grant would be tailored to each individual state and indexed for inflation and population growth.

Medicare: For those 55 years old and older, there would be no change. Younger beneficiaries would receive a cash payment to buy coverage from an insurance plan “similar to what is now available to members of Congress and federal employees.”

Social Security: The GOP included a relatively modest proposal in this document on the retirement benefits. Cutting and pasting this into the 2012 budget would be less far-reaching than some Republicans want but could be harder for Democrats to attack.

In 2009, the GOP called for attaching a “trigger” to Social Security that would automatically reduce benefits five years before the program cannot meet its full commitments (currently scheduled to happen in 2037). Specifically, it would trim benefit payments for the wealthiest recipients.

In 2011, for example, a person receives benefits based on a sum of 90 percent of the first $749 of his or her average indexed monthly earnings, plus 32 percent of his or her average indexed monthly earnings over $749 and through $4,517, plus 15 percent of his or her average indexed monthly earnings over $4,517. The GOP proposed reducing the highest bracket by 0.25 percent per year once the trigger is reached.

It should be noted that then-Obama budget director Peter Orszag endorsed such an idea.

Ryan Roadmap for America (Jan. 2010)

When introduced as legislation, Ryan was only able to garner 13 co-sponsors for this plan. Fiscal experts praised Ryan for his courage, but he faced criticism for turning Medicare into a partial voucher system and for paring back Social Security benefits and allowing personal accounts as an option.

Medicaid: The plan converts this to a combination of heath tax credit and debit card direct payment. The amount of government funds put on the debit card are set depending on poverty level and can be used either to buy health insurance or healthcare. 

Medicare: No changes for those over 55 years old. The program for those younger would be converted to a voucher system. Beneficiaries would get a payment averaging $11,000 per year. The poor would get a greater payment and it would be indexed to inflation. The plan creates Medical Savings Accounts for the poor. It uses tort reform to control healthcare costs by capping damages for medical malpractice.

Social Security: No changes to those age 55 and older. It gives younger workers the option of investing up to one-third of Social Security payroll taxes and makes the program solvent post-2037 by raising the retirement age gradually until it reaches 70 after 2100. The proposal reduces initial benefits by altering how prices are calculated but does not touch cost-of-living adjustments.

Bipartisan Policy Center “Rivlin-Domenici” Plan (Nov. 2010)

Ryan has said he has great respect for former Clinton budget director Alice Rivlin, a co-author of this plan with former New Mexico Sen. Pete Domenici.

Medicaid: The plan would restrain the growth in spending through several options. The administering of program could be reorganized with the federal government assuming some responsibility for parts, so that the system cannot be “gamed.” It would also tax sweetened beverages to cut down on obesity-related illnesses.

Medicare: Creates an optional Medicare voucher payment. Under the plan, growth in Medicare spending would be capped at a set rate. Any growth in costs exceeding that would force beneficiaries to pay an additional premium. Those wishing to avoid this possibility may accept a voucher and purchase insurance on a health insurance exchange. Additional savings come a wide array of proposals, such as raising Medicare Part B premiums and allowing Medicare to demand additional rebates from drug companies. Capping malpractice awards through tort reform would also drive down costs.

Social Security: The proposal would increase taxes, allowing individual income over the current threshold of $106,800 to be taxed. It would not raise the retirement age beyond the scheduled increase to 67. Benefits would be slightly lowered each successive year by 0.3 percent because Americans are living longer. 

Cost-of-living adjustments to benefits would be reduced by changing the way inflation is calculated. Wealthy individuals would see benefits reduced somewhat, but low-income laborers would get more.

President Obama’s Fiscal Commission (Dec. 2010)

Ryan served on the fiscal commission, but he did not vote for its final plan. 

He has said there is much to admire in it, and including these proposal could make it easier to enact the reforms. By mirroring the debt commission recommendations, Ryan cold eventually link the House GOP entitlement reforms with a bill being developed by a Gang of Six senators that would be based on the commission’s recommendations. Obama has never endorsed the commission plan.

Ryan’s stated objections were that the tax reforms in the plan raised taxes and it left Obama’s healthcare reform in place. Experts criticized the plan for saying Medicare and Medicaid are the biggest drivers of the debt, but not giving a comprehensive plan to tackle them.

Medicaid: The plan has several small bore cost saving approaches to Medicaid such as reducing payments for the administration of the program and putting seniors in both Medicare and Medicaid into Medicaid only. In the long run, the plan suggests placing a cap on spending growth, but does not endorse a specific way to ensure costs are contained.

Medicare: Proposes paying for the “doc fix,” in which Congress has regularly suspended a massive cut to Medicare payments to doctors without offsetting the costs of doing this. Obama’s budget has already proposed paying for this for three years. The plan has a host of ways to pay for the Doc Fix from going after fraud to forcing drug companies to give rebates they give to Medicaid to Medicare as well. In the long run, the plan suggests placing a cap on spending growth, but does not endorse a specific way to ensure costs are contained. 

Social Security: The plan raises the retirement age gradually to 69 by 2075. It would raise taxes by allowing individual income of about $106,800 to be taxed. It would convert the 90 percent / 32 percent / 15 percent calculation explained above to a 90 percent / 30 percent / 10 percent / 5 percent formula. This would increase benefits for the poor but reduce them for the wealthy. It would change the way inflation is calculated and apply this to how benefits are determined.