GOP bets voters will choose fiscal well-being over healthcare safety net

House Republicans’ ambitious plan to cut $5.8 trillion in federal spending over the next decade is built on a politically risky revival of the longtime GOP quest to scale back the healthcare safety net and hand consumers primary responsibility for controlling costs.

The budget resolution unveiled Tuesday by House Budget Committee Chairman Paul D. Ryan (R-Wis.) would dramatically improve the nation’s overall fiscal picture, reducing deficits projected in President Obama’s budget and moving the federal government into surplus by 2040, according to the nonpartisan Congressional Budget Office.

Republicans are betting that a high-profile fight over government spending will swing budget-minded voters their way in the 2012 campaign.

But the largest savings in their plan would come from slashing popular programs that cover about 100 million Americans.

The GOP proposal would phase out direct payments to doctors and hospitals under Medicare, scale back the Medicaid program for the poor and disabled, and throw out government insurance subsidies that the new healthcare law is to make available to millions of Americans starting in 2014.

That would force seniors to pay more for their healthcare and would likely make states cut back their Medicaid programs, the Congressional Budget Office concluded.

Gone would be Medicare’s open-ended pledge that the government will pay providers for all services the program covers. Republicans instead propose to provide fixed subsidies and let seniors shop for private insurance.

In place of the federally overseen Medicaid insurance plan, the proposal would allow states to construct their own plans with their own standards and pay the costs with block grants from Washington.

House Republican leaders argue that cuts are necessary to save the programs. “This is not a budget. This is a cause,” Ryan said. “The social safety net is fraying at the seams.”

Former House Speaker Newt Gingrich espoused similar transformations to government healthcare programs when Republicans swept to power in 1994, and George W. Bush ran for president on a promise to introduce more market forces into Medicare.

Despite decades of experiments, however, it is far from clear that market forces will hold down the nation’s skyrocketing healthcare tab. It is equally uncertain that states will be able control Medicaid costs without stripping away benefits from millions of people.

Critics believe Ryan’s approach will shift the higher costs onto the shoulders of individuals, much as the change from defined-benefit pensions to 401(k) plans has increased retirement risk for many families.

That could mean that senior citizens, the disabled and the poor will pay more, even as Washington pays less.

Chip Kahn, president of the Federation of American Hospitals and a former senior GOP congressional aide, warned that Ryan’s proposal would “result in the loss of health coverage for millions of low-income Americans, reduce critical benefits for others, and make it more difficult for hospitals, clinicians and other healthcare providers to deliver the care so many need.”

Republican congressional leaders and conservative activists hailed Ryan’s plan Tuesday as an overdue reckoning with the nation’s future.

“This budget reflects an honest assessment about the current unsustainable trajectory of Medicare and saves the program for future generations,” said Rep. Tom Price (R-Ga.), a leading critic of the healthcare law Obama signed last year.

Former Republican Sen. Alan Simpson and former Clinton White House Chief of Staff Erskine Bowles, the chairmen of the bipartisan National Commission on Fiscal Responsibility and Reform, praised Ryan’s plan as “serious,” but they criticized the proposed cuts for having “a disproportionately adverse effect on certain disadvantaged populations.”

In addition to healthcare cuts, Ryan’s plan reduces spending on so-called discretionary programs, including renewable-energy programs, agriculture subsidies and housing aid. It would make food aid to the poor a block grant.

The plan freezes pay for federal employees through 2015 and seeks to reduce the federal workforce by 10% over three years. It eliminates programs deemed unnecessary by the Defense Department.

At the same time, Ryan’s plan would permanently extend tax cuts signed into law by President George W. Bush.

It lowers the top tax rate for individuals and businesses from 35% to 25% and simplifies the tax code by eliminating unspecified loopholes, tax breaks and tax brackets.

Ryan did not propose ways to bolster Social Security, but urged the president and Congress to come up with a plan.

The broad outlines of the GOP proposal suggest that starting in 2022, Americans would have a vastly different experience when they became eligible for Medicare. Eligibility would be raised from 65 to 67, the CBO said.

Instead of signing up for the government insurance program as they do now, seniors would shop among private insurance plans and use a government subsidy to defray part of their premiums.

Seniors with higher incomes would receive smaller subsidies, under a formula to be determined. All plans would have to offer a basic set of benefits established by the federal government.

This “defined contribution” model draws from the system that the Bush administration created when it developed the new Medicare Part D drug benefit in 2003. Under that program, seniors select a private drug plan and split the premium with the federal government.

Part D has proven less expensive than originally projected, due in part to the growing popularity of cheaper generic drugs.

But the program also has demonstrated that seniors don’t always select the best plan for them. Data show that seniors often stay with the wrong plan rather than going through the laborious process of selecting a new plan every year.

“The idealized notion that older consumers would be making these annual choices may have some merit as an idea, but it doesn’t seem to be taking place in practice,” said Patricia Neuman, who directs the Medicare Policy Project at the nonpartisan Kaiser Family Foundation.

Choosing the right health plan could become even more crucial if federal subsidies do not keep up with premiums.

In 2010, half of the nation’s Medicare beneficiaries had incomes of less than $21,000 a year, according to a Kaiser Family Foundation analysis.

Americans who rely on Medicaid could see even more dramatic changes.

Though Ryan proposed $30 billion in cuts to Medicare spending over the next decades, he proposes to slash federal Medicaid costs by $771 billion as the government switches to a system that provides states with block grants.

Ryan described the proposal as a way “to give states the flexibility they need to better assist their most vulnerable populations.”

But as governors across the country move to cut hundreds of thousands of people from the Medicaid rolls to make up for disappearing federal aid, many experts, including those at the CBO, expect that the most likely effect will be more cuts.

noam.levey@latimes.com

kathleen.hennessey@latimes.com