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How Paul Ryan's new budget plan would transform health care

Proposal would make three key changes to the country's health care system

Topics: Medicaid, Reimbursement, Finance, Medicare, Payer and Regulatory Policy, Market Trends, Strategy, Health Policy

March 13, 2013

House Budget Committee Chair Paul Ryan (R-Wis.) on Tuesday unveiled a fiscal year (FY) 2014 budget proposal that he says would achieve a balanced budget over the next decade by repealing the Affordable Care Act (ACA), transitioning Medicare to a premium-support program, and turning Medicaid into a block-grant system.

Overall, Ryan's 10-year spending blueprint calls for $4.6 trillion in savings, with about $2.7 trillion coming from federal health care programs. The plan also would overhaul the tax code to simplify it from seven individual tax brackets to two.

Proposal: Turn Medicaid into a block-grant system

The FY 2014 budget proposal would generate immediate savings from Medicaid by turning the program into a block-grant system, in which states receive a fixed amount of money for their programs.

According to National Journal, the amount of money states receive would not vary based on the size of each state's program or how sick enrollees are. The plan also would not take into account annual increases in medical prices. Instead, it would allow payments to grow at the rate of overall population growth.

Ryan's budget estimates that the provision would save about $756 billion over the next decade.

Proposal: Turn Medicare into premium-support system

Ryan's spending blueprint would not generate any savings from his plan to turn Medicare into a premium-support system, National Journal reports.

Under Ryan's plan, beginning in 2024, beneficiaries age 65 and older would receive a federal subsidy that they could use to purchase either a private insurance plan or traditional Medicare in a marketplace of competing plans. The proposal would require private plans to cover at least the actuarial equivalent of the benefit package offered by traditional Medicare.

The budget also would require every plan in the marketplace to participate in an annual bidding process to control costs. The benchmark plan would either be the second-least costly private plan or traditional Medicare, whichever is less costly. Beneficiaries who choose a more costly plan would cover the difference between the subsidy and the monthly premium, while those who choose a less costly plan would receive a rebate for the difference.

However, the price of Medicare could become too costly for some individuals because it would have to compete with private plans, National Journal reports. The plan also could shift costs to beneficiaries, regardless of the price of the plan they choose.

Proposal: Repeal the ACA

Ryan's FY 2014 budget proposal assumes that Congress would repeal the majority of the ACA, which is unlikely given President Obama's re-election and the fact that Democrats maintained control of the Senate, National Journal reports.

Ryan's spending plan eliminates ACA revenues and provisions that Republicans opposed, such as the Independent Payment Advisory Board (IPAB), the tax on medical devices, and the penalty for not obtaining insurance coverage.

However, the budget plan would keep the law's $716 billion in Medicare savings, as well as the ACA's 0.5% growth cap for Medicare spending, which IPAB was meant to enforce.

What's next for the Ryan budget proposal?

Ryan's plan is expected to pass the House next week but likely will be voted down in the Senate and rejected by the White House, USA Today reports. The Obama administration yesterday criticized the plan, arguing that it would undercut benefits to Medicare beneficiaries and increase their out-of-pocket costs.

Meanwhile, Democrats and some lobbying groups also criticized the proposal, The Hill's "Healthwatch" reports. House Minority Leader Nancy Pelosi (D-Calif.) in a statement said, "The Republican budget is nothing more than more of the same. … It still undermines the health and economic security of the elderly and disabled." She added, "It still ends the Medicare guarantee and shifts costs to seniors" (Davis, USA Today, 3/12; Montgomery, Washington Post, 3/12; Sanger-Katz, National Journal, 3/12; Zigmond, Modern Healthcare, 3/12 [subscription required]; Haberkorn/Norman, Politico, 3/13; Baker, "Healthwatch," The Hill, 3/12).

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