Medicare Cuts Without the Ryan Plan

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In the spring of 2008, Rep. Paul Ryan first introduced an ambitious plan to rein in the country’s debt. The proposal called for cuts in just about every area of the federal budget, but its centerpiece was replacing the traditional Medicare program with a system of subsidies for private plans. Ryan's plan drew only eight cosponsors and died in committee.

After the financial crisis led to exploding federal deficits and brought fiscal concerns to the fore of public concerns, Ryan’s budget gained popularity on the right and, in time, became the default fiscal stance of Republicans. His Medicare reform plan, modified and moderated, was adopted by the Romney presidential campaign and approved by the House of Representatives once again in its most recent budget resolution.

As a result, Ryan’s push for competitive bidding and premium support in Medicare has become the defining feature of Republican fiscal hawkery. There are other parts of his plan for cutting the budget that could have superseded the Medicare plank, such as the call for block-granting Medicaid to the states or imposing tight caps on discretionary spending. Yet for a number of reasons, including the political sensitivity of retirement benefits, Ryan’s vision for Medicare has become the central and strongest claim made byRepublicans trying to reduce the debt.

With Barack Obama in the Oval Office and a never-ending series of panels and high-level negotiators setting the fiscal agenda, the odds of the Ryan plan for Medicare being implemented were never favorable. Those long odds, however, don’t mean that there haven’t been prospects for saving money in Medicare or even for a significant overhaul of the program.

Last week the New York Times’ Jackie Calmes and Robert Pear reported that President Obama and Congressional Republicans have engaged in quiet discussions about changing Medicare.

In particular, participants say, the president told House Republicans that he was open to combining Medicare’s coverage for hospitals and doctor services. That would create a single deductible that could increase out-of-pocket costs for many future beneficiaries, but also could pay for a cap on their total expenses and reduce the need to buy Medigap supplementary insurance.

The details, of course, are sketchy, but this could be a big deal, in terms of dollar amounts. As Calmes and Pear note, an underappreciated fact is that, at various times since 2011, Obama has gone on record supporting up to $135 billion in Medicare cuts over 10 years.

That’s not that much, given that Medicare spending is projected to total nearly $6.4 trillion over the next 10 years. It’s an opening offer from a president who is well aware that his interlocutors would like to go further. Other plans with the key features outlined here, though, have been projected to save significantly more.

In 2011, Senators Joe Lieberman and Tom Coburn introduced a plan that would have coupled the kinds of cost-sharing methods discussed in the Times article with further means-testing, a rise in the retirement age, and anti-fraud measures. Taken together, those reforms were supposed to save $600 billion in the 10-year budget window.

That is a lot of money, especially when it’s considered that Ryan’s latest plan aimed for only $129 billion in savings over the same timeframe, backdating the majority of the spending reductions for after today’s 55 year-olds have safely retired with full Medicare benefits.

Lieberman has since retired, but the Connecticut senator was an independent who caucused with the Democrats. Coburn, from Oklahoma, is known as one of the most fiscally conservative members of the Senate. The idea that combining and increasing Medicare deductibles and increasing copays could result in serious savings is one with bipartisan roots.

It’s a possibility that might be a little harder for rank-and-file Democrats to come to welcome a compromise along the lines. Such a reform, however, wouldn’t be all pain. It wouldn’t simply squeeze money out of the Medicare system wherever possible. It would improve the program for many recipients. In particular, capping beneficiaries’ total out-of-pocket maximum costs could be a relief for many seniors. And higher cost-sharing, the thinking goes, would make seniors more sensitive to the way their Medicare dollars are used and increase the efficiency of the program.

Democrats will surely think hard about how badly, and by how much, they want to cut Medicare spending. As the Times notes, Obama is only willing to enact Medicare reform in the context of a larger budget deal, doubtlessly in part to make the cuts easier for his constituents to swallow.

It would be easier for Republicans to unite behind a deal like this one, but there's a catch. There’s nothing in the discussions outlined by the Times that would preclude a Ryan-style reform of Medicare, but the plain political fact is that any significant Medicare spending reduction package will be the only one they get. Selling Ryan's premium support scheme to voters after already reducing Medicare spending by hundreds of billions would be a tall, tall orde. Fiscal restraint and market-friendly Medicare reform might be within the reach of party leadership, but at the price of the privatization ideal the party has embraced over the past five years.

Joseph Lawler is editor of RealClearPolicy. He can be reached by email or on twitter.

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