House GOP looks ready to shrink US role in Medicare. Is Obama?

House's plan for next round of budget-cutting would revamp the social contract between Medicare recipients and the government. Obama may say on Wednesday how far he'll go on Medicare reform.

House Republicans' budget plan for fiscal year 2012, slated to be taken up by the full House later this week, aims to roll back nearly half a century of social policy, as well as cut trillions in federal spending. Though it has scant prospect of gaining Senate approval, the plan is nonetheless expected to define partisan fault lines through the 2012 election and beyond.

On Wednesday, President Obama will lay out a competing idea for how to go about cutting government spending and reducing the record federal deficit. He, too, is expected to address the social contract with Americans via entitlement programs, after mostly ignoring that issue in his 2012 budget proposal earlier this year.

Crafted by Rep. Paul Ryan (R) of Wisconsin, who is the Budget Committee chairman, the plan would cut $5.8 trillion over the next 10 years, targeting some of America's most popular government programs. He said on April 5 that it's time to end "empty promises to Americans from a government that is going broke."

The House GOP proposal would roll back Obama-era tax increases, defund the health-care reform law passed last year, transform Medicaid (for the poor) into block grants to the states, and replace the defined benefits of Medicare (for seniors) with subsidies for private insurance.

Democrats see the plan as a deliberate bid to dismantle the legislative legacy of the New Deal and Great Society, especially by downgrading the government safety net for the most vulnerable.

"The Republican budget is the same tired formula of extending tax breaks to the rich and powerful at the expense of the rest of America – except this time on steroids and dressed up with nice-sounding sweet talk of 'reform,' " said Rep. Chris Van Hollen (D) of Maryland, the top Democrat on the House Budget Committee, before the panel approved the measure on a party-line vote on April 6. "There is nothing courageous about targeting the most vulnerable in our society."

On the Senate floor Tuesday, majority leader Harry Reid spoke of the 2011 budget battle – expected to end with a vote on the compromise deal later this week – and the wrangling that lies ahead over the 2012 budget. "This budget battle has once again illustrated for the American people the fundamental differences between the two parties. In some cases, our priorities are poles apart," he said. "As we work toward finalizing this year's budget, as we start the conversation about next year's budget, and as we engage in the many other debates before us, Democrats will continue to insist on policies that reflect and respect our values."

Republicans see this as a last chance to overhaul entitlement programs before the bulk of the huge baby-boomer generation starts receiving Medicare and Social Security benefits. They compare this fight with the Clinton-era battle to overhaul the welfare system, led by the last GOP House majority. The 1996 welfare reform law limited the duration of cash benefits and gave states more authority to encourage work and control spending. "Opponents of these reforms said that they would lead to large increases in poverty and despair. Instead, the exact opposite occurred," the 2012 GOP budget document notes.

"This is not a budget; this is a cause," said Representative Ryan at the rollout of his budget plan on April 5. "We owe it to the country to give them an honest debate."

For weeks, Ryan has been telling GOP colleagues that they have to "lead with their chin" on this budget, which would go into effect Oct. 1. Over time, facts will prevail, he says. The American public will become more familiar with the consequences of the nation's fiscal trajectory – and blame those who saw the problem but did not act.

When Ryan last year first proposed his Roadmap for America's Future – including cuts in Social Security benefits – it attracted, at best, 18 Republican supporters. But the 87-member GOP freshman class has swelled the ranks of conservatives eager to take on entitlements and spending. "Every political adviser, even my own, tells you to stay away from these issues," says freshman Rep. Tom Reed (R) of New York. "I said: We're not down here to win elections."

At the heart of the looming debate is a struggle over the size of government and its capacity to fund social programs – particularly Medicare and Medicaid. Using spending caps and triggers, the GOP budget proposal would bring government spending to below 20 percent of gross domestic product by 2015, and to below 15 percent by 2050. That compares with 23 percent in Mr. Obama's fiscal year 2012 budget.

A key to reining in the size and scope of government is limiting the growth of entitlement programs. Medicare expenditures are growing at a rate of 7.2 percent a year, driving medical inflation and threatening its own solvency and that of the federal government.

The GOP solution is to convert the federal role in Medicare from funding a defined benefit to providing "premium support" for individual seniors to buy private insurance. Such subsidies would take into account a person's income and health status.

This proposed system, the Congressional Budget Office estimates, would increase costs for the typical Medicare beneficiary from the current 25 to 30 percent range to 68 percent by 2030. And federal Medicare spending would be cut by two-thirds by 2050.

"Seniors will pay more, while insurance companies stand to reap a bonanza by getting all the Medicare payroll taxes and premiums," said Representative Van Hollen at the committee markup.

The plan limits changes in Medicare to those under age 55.

In a shift from his own Roadmap, Ryan did not take up Social Security reform in this budget. There is a bipartisan path forward on Social Security, he says.

House GOP leaders predict that their 241-member caucus will rally solidly behind the plan – even at the risk of losing seats in the next election.

Within GOP ranks, the main critics are lawmakers who say the Ryan plan does not cut government spending quickly enough. The Republican Study Committee, the conservative arm of the GOP caucus, on April 7 released its own FY 2012 budget proposal, which aims to balance the federal budget by 2020. The Ryan plan doesn’t foresee a budget surplus until 2040. The RSC plan also proposes deeper cuts in entitlement spending than does the Ryan plan, including gradually raising the age of eligibility for Social Security to 67 and mandating changes in Medicare for those 60 and older. The Ryan plan phases in in changes for Medicare for people now younger than 55.

“This budget blueprint proves that it is possible to balance the budget in ten years, despite what skeptics would like you to believe,” said Rep. Scott Garrett (R) of New Jersey, chairman of the RSC's budget and spending task force, on April 7.

"Our budget is a defining moment," said Rep. Jeb Hensarling (R) of Texas, who chairs the House Republican Conference. "The government has got to stop spending money we don't have."

He adds, "The programs that have been a great comfort to our grandparents are morphing into a Ponzi scheme for our grandchildren – and we can't let that happen."