Ryan's budget proposal: promising goals, troubling specifics

Our view: The Republican budget chairman in the House of Representatives has set a new standard for talking about the deficit

April 05, 2011

Paul Ryan, the Republican representative from Wisconsin who heads the House budget committee, deserves tremendous credit for the deficit reduction proposal he unveiled today. While his colleagues are squabbling about a few billion in symbolic cuts to the current year's federal budget — and threatening a government shutdown in the process — he has taken the politically risky but necessary step of advancing a proposal for the next fiscal year and beyond that would tackle the real sources of our federal budget problems: Medicare and Medicaid, corporate tax loopholes, excessive defense spending, agriculture subsidies and more. In all, he would reduce planned federal spending by $5.8 trillion over the next decade.

Next to that, fighting over funding for National Public Radio, the Legal Services Corporation and Planned Parenthood looks pretty insignificant. House and Senate leaders and the Obama administration met today in an effort to find another stopgap measure to avoid a government shutdown this weekend, though they failed to strike a deal, largely because the tea party element in the House wants a few billion more in cuts. Mr. Ryan's proposal should be enough to convince them they've picked the wrong fight and should instead focus on his ideas for the long term — ideas that would come a lot closer to balancing the budget than anything currently on the table (closer even than the Bowles/Simpson plan released by the president's debt commission in December).

It will take time to digest the details of what Mr. Ryan is suggesting, and we are by no means in a position to endorse his plan. At a first glance, some ideas look promising, such as eliminating tax loopholes and deductions while reducing rates and accepting Defense Secretary Robert Gates' proposed cuts to the military. Others, particularly Mr. Ryan's ideas for Medicare and Medicaid, look troubling.

In all, Mr. Ryan proposes to find $2.2 trillion in health care savings. This is politically ironic, coming a year after Republicans claimed that President Obama's health care reform law would destroy Medicare, but it is nonetheless true that no serious effort at reducing the size of the federal deficit can succeed without addressing the ballooning cost of health care. The problem with Mr. Ryan's approach is that it seeks to control how much the government pays in health care benefits for the poor and elderly, not how much it actually costs to keep them healthy — and that will inevitably result in a rationing of care far more devastating than anything Republicans alleged was part of President Obama's reform bill.

Right now, Medicare and Medicaid are defined benefit programs. The federal government pays however much money is needed to provide a defined set of health care services for eligible senior citizens and the poor. Because the cost of health care, whether provided by the government or the private sector, is skyrocketing, those programs have become major drivers of the federal deficit.

Mr. Ryan proposes to change these programs to defined contribution plans. In the Medicaid program, the federal government and the states share the costs of the program according to a formula based on each state's wealth — Maryland, for example, splits the costs 50-50. Mr. Ryan would change Medicaid to a block grant in which the government gives each state a set amount of money and allow it much greater flexibility in how it administers the program. Flexibility is nice, but what it really amounts to in this case is a transfer of the risk that health care will become more expensive from the federal government to the states, which aren't exactly swimming in cash themselves.

The idea for Medicare is similar, but instead of transferring the risk to states, the plan transfers it to seniors. Mr. Ryan would allot subsidies to the elderly and allow them to choose among a set of approved health plans. The individual beneficiaries would be responsible for the difference between the subsidy and the plan's cost. Mr. Ryan says this would lead to savings because private sector competition would create more efficient administration of the program, but administrative costs haven't been Medicare's problem. In fact, previous experiments with privatizing administration of some Medicare services have shown exactly the opposite. What this really does is to once again open seniors to the risk President Lyndon Johnson sought to eliminate — that they would be unable to afford life-saving care or would be wiped out financially as a result of their deteriorating health.

That said, Democrats' initial response — to dismiss Mr. Ryan's ideas as way outside the mainstream, as Maryland's Rep. Chris Van Hollen did — is the wrong answer. The Wisconsin Republican has not handed Democrats a club to bludgeon the GOP with in the 2012 election but has set the standard for talking about the federal budget. Now is the time for the president and the Democratic leadership to embrace the Bowles/Simpson plan as the basis for an alternative but equally serious attempt at controlling the deficit.

Americans may have misgivings about many of Mr. Ryan's specifics, but they don't dispute his grasp of basic math, and they know that he's right about the unsustainability of our current path. Mr. Obama justified his lack of leadership on this issue so far by saying the time wasn't yet right for a real conversation about the budget in Washington. With Mr. Ryan's politically courageous step, he no longer has that excuse.

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