By Crystal D. Swann
April 11, 2011

House Budget Committee Chairman Paul Ryan released his proposal for the fiscal year 2012 budget. The budget proposal, contained in a 30-page document, describes changes to Medicare and Medicaid. In the plan, Ryan proposes to end the Medicaid entitlement replacing it with a fixed funding amount in a state block grant and to end the Medicare program replacing it with a “premium support” voucher program for seniors. Ryan proposes to slash $771 billion out of current Medicaid and another $627 billion out of Medicaid as part of health care reform for a total of $1.6 trillion in federal Medicaid cuts over the 2012-2021 period.

The proposal for Medicaid would replace the current formula-based Medicaid program with block grants to states, ideally giving states flexibility on how to spent the funds. In a letter to appropriators, sixteen governors expressed strong opposition to “a congressionally mandated block grant of federal Medicaid spending, which would shift costs and risk to states.” As the Ryan plan indicates, federal funding share to states would be capped leaving states with no choice but to eliminate services, increase taxes, cut eligibility and benefits reduce or cut other programs to make up the anticipated funding shortfall. Medicaid is the largest payer of long-term care, including half of all nursing home costs nationally.

As the Congressional Budget Office (CBO) reports, the Medicaid block grant amounts under the Ryan plan would grow each year with inflation and the U.S. population growth, “which is roughly four percentage points less than current projected annual growth in Medicaid.” As the Center on Budget and Policy Priorities states, this funding doesn't include the loss of the additional federal funding states would have received under the Medicaid expansion plan under the health reform law. Federal Medicaid expenditures are expected to total about $275 billion in 2011 and are projected to double by 2021, according to CBO. Medicaid is a joint federal-state health-funding program.

Today, Medicare provides beneficiaries with a set of hospital, outpatient, and prescription drug benefits and is funded by a combination of payroll taxes that workers pay during their working years, employer contributions to those payroll taxes, general federal funds, and beneficiary premiums. Under Ryan's proposal, the program would shift from a defined-benefits program to a defined-contributions program by changing the Medicare program to a privatized voucher-based system. According to the Ryan plan, in place of the federal government's Medicare plan, seniors on Medicare would receive a set amount of money, starting in 2022, to offset the cost of buying a private insurance plan.

Additionally, the Ryan plan would cut Medicare funding by $30 billion over ten years. Medicare – which covers health care for about 48 million elderly and disabled Americans – cost $396.5 billion in 2010 and will cost an estimated $502.8 billion in 2016, according to the CBO.

A recent report by the CBO suggests that the Ryan proposal would actually spark a drastic increase in how much the nation spends on healthcare for the elderly. The CBO estimates that even as the federal government cuts it's spending, seniors would end up paying twice as much out of their own pockets – or more than $12,510 a year.

Not all seniors would be affected by the change; adults 55 years and older would be largely unaffected by Ryan's proposal. As it stands, anyone already on Medicare would not be affected by the proposals. The Ryan proposal aims to create fixed number to stem the growing costs of Medicare by shifting the additional cost increases beneficiaries and those who choose more comprehensive benefit plans are expected to pay the additional costs not the federal government.