Entitlement Reform: What Next?
Paul Ryan’s budget proposal jump-starts the conversation on Medicare, Medicaid, and Social Security.


Can the GOP seriously tackle entitlement reform in this Congress? If they try, will there be political backlash? Is Paul Ryan on the right track with his “Path to Prosperity” reforms? National Review Online asked the experts.

I’ve long believed that truly reforming Social Security, Medicare, and the elder-care portions of Medicaid would require policymakers to step outside the fundamentals of the current programs. How can you save the intergenerational insurance model (where a working generation pays the benefits of a retired generation) when there are too few people working to support a burgeoning population of seniors? If we were totally honest about our intergenerational insurance programs, we would recognize that they died a fiscal death a long time ago. No matter what your ideology, you can’t argue with demographic drift.

Given that starting place, a fruitful policy debate in this Congress should involve committing to the following three goals:

Goal 1: Reconstruct the intergenerational insurance model into one where the federal government ensures that all seniors have at least a minimum level of income and health coverage but does not support Americans who have the means to support themselves. As the Heritage Foundation’s Stuart Butler says, that means going to a true insurance model.

Goal 2: Change our tax and savings policies so that working-age Americans put more of their income into savings accounts. More savings will make people less reliant on the federal government for their retirement needs. Automatic enrollment in IRA programs is one way to build a better retirement future that’s less reliant on Social Security.

Goal 3: Structure these rebuilt retirement programs so that they are financially viable within the next ten years. That’s tricky, because so many Americans have been deceived into believing that they did not need to supplement government retirement programswith their own savings. Transitioning these folks into retirement while changing the system for those still working will be difficult, but we have no other choice.

For the present debate to be productive rather than merely political, Congress will need to adopt these goals for reforming our leading entitlement programs.

William W. Beach is director of the Heritage Foundation’s Center for Data Analysis.

The Washington Post described Budget Committee chairman Paul Ryan’s “Path to Prosperity” reforms as “the most ambitious alteration of federal benefits since President George W. Bush’s ill-fated attempt to overhaul Social Security in 2005.” In fact, Ryan’s plan is far more ambitious than that — more ambitious, indeed, than any other budget proposal within memory. And more necessary.

As I argued in National Review last year, Medicare and Medicaid provide strong incentives for overspending and waste, Medicare because its benefit structure, following the model of an all-you-can-eat restaurant, provides no reason for patients to care about the cost-effectiveness of their care; and Medicaid because federal matching formulas encourage states to expand coverage even when additional dollars would be largely wasted. Ryan’s plan helps address those problems by instituting a premium-support model for Medicare and shifting Medicaid from matching payments to block grants. Seniors wanting more generous coverage can pay extra for it, if they think their dollars will be well spent. States wanting to expand Medicaid will do it on their own dime, ensuring that expansions are cost-effective. Only in Washington would it seem novel that stakeholders should have a reason to care if taxpayers’ health dollars are well spent.

On Social Security, Ryan leverages a little-known provision of existing law that requires the program’s trustees — the secretaries of the Treasury, labor, and HHS and the Social Security commissioner, along with two public trustees — to outline a plan for solvency if the trust fund falls below a given level. Ryan’s plan merely would require that action today, before a crisis hits. If nothing else, this provision would force the Obama administration to finally fulfill its obligation to propose reforms to this important program.

How Ryan’s budget proposal will fare is anyone’s guess. But agree or disagree, it should be clear that at least one side in this budget debate is finally serious.

— Andrew G. Biggs is a resident scholar at the American Enterprise Institute. Previously he was the principal deputy commissioner of the Social Security Administration, and in 2005 he worked at the White House National Economic Council on Social Security reform.