Report | Budget Taxes and Public Investment

Ryan’s budget would undermine economic security for millions

Policy Memo #180

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House Budget Committee Chairman Paul Ryan’s fiscal year 2012 budget resolution would undermine the modern social safety net, reversing the gains America has made in health and economic opportunity. This resolution would deny millions of middle- and low-income households access to the American Dream. A number of vital federal government programs are targeted for near-destruction by Ryan, including Medicare and Medicaid; and other programs, such as Social Security, likely would be radically weakened.

Medicare

The budget resolution eliminates Medicare as we know it, shifting costs onto seniors. Instead of today’s system, Ryan’s proposal would provide seniors with vouchers to purchase health care from private insurers. Payments would be adjusted so that wealthier beneficiaries would receive lower subsidies. Though Ryan is vague about what level of income constitutes “wealthy,” the Center on Budget and Policy Priorities has suggested in previous analyses of Ryan’s so-called Roadmap for America’s Future (2010) that “beneficiaries with incomes over $80,000 ($160,000 for a couple) would receive a voucher for half the basic amount or less.”1 In essence, Medicare would shift from being a program that guarantees benefits to one that guarantees only a specific level of contribution toward beneficiaries’ health care costs.

This plan puts money directly into the pockets of insurance companies, which are much less efficient than Medicare. The Congressional Budget Office (CBO) has noted on a few occasions that spending for beneficiaries in Medicare Advantage plans—the program on which Ryan’s proposal is modeled—is higher than spending for beneficiaries in traditional Medicare plans. In a June 2007 report, CBO noted that “Medicare’s payments for beneficiaries enrolled in Medicare Advantage plans are higher, on average, than what the program would spend if those beneficiaries were in the FFS [fee-for-service] sector—so shifts in enrollment out of the FFS program and into private plans increase net Medicare spending.”2 In a letter in August 2007, CBO also noted that “the federal government spends about 12% more on beneficiaries in [Medicare Advantage] plans than it does on beneficiaries in FFS.”3 Ryan’s plan prioritizes sending funding directly to insurance companies over pursuing efficiency in Medicare.

Ryan’s Medicare plan also only saves $30 billion over the next 10 years relative to CBO baseline levels, though it cuts much more from Medicare in the long run. These long-run savings are achieved by capping the growth rate of the vouchers at substantially less-than-average growth rates for health care costs. Rather than improving the cost-effectiveness of the Medicare program—thus providing savings without impacting health care benefits or health outcomes—this proposal instead cuts the program across the board and shifts costs onto seniors. In fact, a recent CBO analysis found that a typical senior would eventually end up spending twice as much of their income on health care as under current law.4

Other long-term changes outlined in Ryan’s plan would involve increasing the age to qualify for Medicare, engaging in medical malpractice reform, and repealing the Patient Protection and Affordable Care Act (PPACA). Though passage of PPACA increased spending to provide coverage to millions more Americans, it actually reduces deficits through efficiency-focused pilot programs and excise taxes. Repeal of PPACA, which Ryan’s budget advocates, would leave a total of 54 million nonelderly people uninsured in 2019—an increase of 32 million uninsured Americans compared with coverage under PPACA.5