Republican budget plan would revamp Medicare, Medicaid

WASHINGTON -- House Republicans set up a politically defining clash over the size and priorities of government Tuesday, unveiling a budget plan that calls for both unprecedented spending cuts and a fundamental restructuring of taxpayer-financed health care for the elderly and the poor.

The plan would slash federal spending by $5 trillion or more over the coming decade. It would leave Social Security untouched but shift more of the risk from rising medical costs from the government to Medicare beneficiaries. It also calls for sharp cuts to Medicaid health care for the poor and disabled and to food aid for the poor.

Dubbed the "Path to Prosperity," the proposal by House Budget Committee Chairman Paul Ryan, R-Wis., also calls for overhauling the complicated and inefficient U.S. tax code. It would scrap numerous tax breaks and loopholes in exchange for reducing the top income tax rate for both individuals and corporations from 35 percent to 25 percent.

Democrats launched a furious counterassault on the health care proposals.

"They're ending Medicare as we know it. They take away the Medicare guarantee for seniors," said Rep. Chris Van Hollen, D-Md. "All the risk of increased costs will be borne by seniors."

A Congressional Budget Office analysis released late Tuesday also showed Ryan's budget would leave in place roughly $500 billion in Medicare cuts that were part of President Barack Obama's new health care law. Republicans blasted those cuts in their successful campaign to take back control of the House. A spokesman for Ryan said the savings would be plowed back into Medicare.

But the GOP budget would also repeal Obama's plan to gradually close the Medicare prescription drug coverage gap, known as the "doughnut hole."

Despite its huge cuts, Ryan's plan still can't claim a balanced budget by the end of the decade because of promises to not increase taxes or change Medicare benefits for people 55 and older. After six years, annual deficits are projected to fall to the $400 billion range, enough to stabilize the nation's finances and prevent a European-style debt crisis that could force far harsher steps, Ryan said.

Under the arcane congressional budget process, the GOP plan is not actual legislation. It does provide a theoretical basis for action, but with Democrats controlling the Senate, the GOP plan serves more to frame the debate heading into next year's election than represent a program with a chance of passing Congress and becoming law.

"For too long, Washington has not been honest with the American people. Washington has been making empty promises to Americans from a government that is going broke," Ryan said. "The debt is projected to grow to truly catastrophic levels in the near future, leading to an economic collapse and a diminished future."

The GOP plan would still add $5 trillion to the deficit over the coming decade, though it promises to reach so-called "primary balance" by 2015, meaning that the budget would be balanced save for interest payments on already accumulated debt. The national debt now exceeds $14 trillion and the White House projects this year's deficit at $1.6 trillion.

Democrats said the GOP plan focused its cuts on seniors and the poor to pay for continued tax cuts enjoyed by the wealthiest.

"Everyone agrees we must cut spending and tighten our belt, but House Republicans have chosen to do so on the backs of America's seniors, not the oil companies making record profits and getting tens of billions in taxpayer subsidies," said Rep. Steve Israel, D-N.Y. "Forcing seniors to pay higher health costs is not the right way to balance our books and it's not the only way to do it."

Ryan's plan would produce a $995 billion deficit next year, compared with the $1.1 trillion projected in Obama's budget proposal. Republicans moved quickly to advance it, scheduling committee action on Wednesday and a vote by the full House for next week.

The GOP plan stands in stark contrast to Obama's February budget, which attracted criticism for failing to address federal health care programs whose costs are far outpacing other inflation. Obama's budget ignored most of the most controversial recommendations of his deficit commission, such as raising the Social Security retirement age and curbing future benefit increases.

The GOP plan would fundamentally restructure the nation's biggest health programs in a bold stroke that could make Obama's insurance overhaul look like baby steps.

Obama's law expanded coverage to about 30 million people who don't have it now. Ryan's plan not only would repeal Obama's expansion, but it would recast Medicare and Medicaid, which currently help pay medical bills for some 100 million Americans.

People now 54 and younger wouldn't get to go into the same Medicare program as their parents and grandparents upon retirement. Instead, they would get a voucher-style federal payment to purchase coverage from a choice of regulated private plans.

Poor people would no longer have a right under federal law to get health care through Medicaid. Instead, Washington would send each state a lump sum to spend on medical care, nursing homes and other health services for the poor and disabled. In an economic downturn, a state hurting for cash might decide to stop accepting new applications for Medicaid.

"These sound like technical solutions to budget problems, but what's really starting to be discussed in Washington are fork-in-the-road differences about the future of Medicare and Medicaid," said Drew Altman, president of the Kaiser Family Foundation, a nonpartisan information clearinghouse on the health care system. "Should we stick with the traditional Medicare program where you have guaranteed benefits? Or should the benefit depend on the plan you get in the marketplace?"

At its most basic level, Ryan's plan would shift more of the risk for rising health care costs from federal taxpayers to individual beneficiaries, medical service providers and states, giving them all a powerful incentive to cut waste and improve quality. If the theory works, it could finally start to slow the unsustainable rate of rising health care costs.

"We're actually saving Medicare and Medicaid, making them solvent for future generations," Ryan said. "And, yes, we're cutting spending. We're cutting a lot of spending, because government is spending way beyond its means."

The GOP's 2012 budget blueprint was unveiled amid a separate battle between Republicans and the Obama administration over smaller but more immediate spending cuts for the current, 2011 budget year.

Compared with Obama's latest budget proposal, Ryan's plan would cut $6.2 trillion over 10 years. But measured against Congressional Budget Office estimates that assume permanent extension of Bush-era tax cuts, Ryan's budget would cut $5.8 trillion. Obama and Ryan each claim $1 trillion in savings from the unrealistic assumption that overseas military operations will soon cost just $50 billion a year -- less than half the amount requested by Obama for next year. Ryan endorses Obama's Pentagon requests, which provide for small increases over current levels.

Ryan's proposal largely sidesteps Social Security, offering a vague requirement that the president and Congress develop a plan to save the system "in the event that the Social Security program is not sustainable." The trustees who oversee Social Security have been projecting for years that the program will run out of money by about 2037.

Last year, Social Security paid out $37 billion more in benefits than it collected in payroll taxes, the first such deficit since the system was overhauled in the 1980s. The program is instead tapping into $2.5 trillion in accumulated savings from previous surpluses.

On taxes, Ryan would rescind all tax increases in both the new health care law and in Obama's proposed 2012 budget. He would extend Bush-era cuts for taxpayers at every income level, including the wealthy. He would reject Obama's call to increase taxes on oil and natural gas companies, which were included in the president's proposed 2012 budget.

He also embraces fundamental tax changes to set a top rate of 25 percent for both individuals and corporations, down from the current 35 percent. That would mirror a proposal by Rep. Dave Camp, R-Mich., chairman of the tax-writing House Ways and Means Committee, to create lower rates by weeding out numerous tax breaks and loopholes enjoyed by both individuals and corporations.

Ryan's plan also would overhaul the way the government gives out food stamps, a program that has grown from $18 billion in 2001 to more than $80 billion this year. It would cap the amount of money each state can receive and make the aid contingent on work or job training. In addition, it would make unprecedented cuts to the operating budgets of domestic agencies, slashing Obama's requests for education, law enforcement and homeland security, along with highway building.

Noting that this year's net farm income is forecast to be the second-highest in the past 35 years, the plan also proposes slashing farm programs by $30 billion over 10 years by cutting crop insurance and certain subsidies paid to farmers regardless of crop price or yield.

------

Associated Press writers Ricardo Alonso-Zaldivar and Stephen Ohlemacher contributed to this report.