Politics & Policy

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.

WILLIAM C. BEACH

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.

ANDREW BIGGS

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.

JOHN C. GOODMAN

The Republicans have no plan to insure the uninsured. How do I know that? A New York Times editorial told me. So did Ezra Klein, writing in the Washington Post.

But wait. Didn’t John McCain have such a plan during the last presidential election?

McCain proposed replacing all existing health-care tax and spending subsidies with a universal health grant, structured like a refundable tax credit. A version of the idea has been sponsored by Sen. Tom Coburn (R., Okla.) and Rep. Paul Ryan (R., Wis.). Under their plan, the first $5,700 a family spends on health insurance is courtesy of Uncle Sam, giving everyone protection against large medical bills

Contrast that with what happens under the health-care-reform legislation passed by the Democrats one year ago. Recently, 30,000 McDonald’s workers were granted a temporary waiver so they can keep their limited-benefit “mini-med” plans — which would otherwise be wiped out by regulations imposed by the Democrats’ legislation.

If McDonald’s were to lower these employees’ wages by $5,700 and buy them $5,700 worth of health insurance, the only subsidy available today would be the one embedded in the tax law — the ability to pay premiums with dollars that escape the payroll tax. That’s worth about $872.

In addition, because as of 2014 mini-med plans won’t be compliant with Obamacare’s mandated benefit package, McDonald’s will have to pay a $2,000 fine for each employee. In short, to get the kind of insurance the McCain/Coburn/Ryan plan would give them for free, McDonald’s workers would have to pay almost all of the cost out of their own pockets and pay the government a fine to boot!

The health-care-reform law enacted last year offers no practical way to insure millions of uninsured and underinsured families. The Republican plan does.

— John C. Goodman is president, CEO, and Kellye Wright fellow at the National Center for Policy Analysis.

DOUGLAS HOLTZ-EAKIN

Will there be entitlement reform in 2011? The conventional wisdom says no. On the surface, too many of the key ingredients are missing: presidential leadership, a pro-reform majority in the Senate, and a clear objective. President Obama has been missing in action on the budget front his entire term and he mailed in a reform-free budget plan earlier this year. Senate Democrats, notably Harry Reid, have steadfastly opposed reform. And even among conservatives there remains confusion as to whether the goal is Medicare reform, Medicaid reform, Obamacare repeal, or overall spending reduction.

Yet it could still happen. It makes sense to focus in 2011 on Medicaid reform. For conservatives, that is where the bulk of the near-term savings reside. Governors have been begging for exactly the flexibility that the House plan offers, as Medicaid is already a budget problem, which Obamacare threatens to turn into a fiscal black hole. Over in the Senate, 23 Democrats are facing reelection and so are more likely to support supposedly Republican initiatives. If the strong leadership shown by the House strikes an electoral chord, Medicaid reform could be on the president’s desk this year.

Faced with this prospect — and pro-reform movements in key 2012 states, including Florida, Ohio, Pennsylvania, and others — the president could respond to Medicaid reform by following his familiar script: sign it, claim credit, and position himself for the next election.

Douglas Holtz-Eakin is president of the American Action Forum.

DAVID KEATING

Rep. Paul Ryan’s budget plan takes a step toward solving the fiscal crisis created by entitlements and discretionary spending, although it should have, at a minimum, balanced the budget within the ten-year budget window. Still, his plan’s lower tax rates would boost economic growth and help to create more and better jobs, which will generate revenue to balance the federal budget.

The budget plan proves that Republicans are serious and presents President Obama with a huge opportunity. The country is looking for leadership on these issues, and if he were to address them responsibly, he would be rewarded in 2012.

But the president almost certainly will not show such leadership. As a result, the right strategy for Republicans is to use the coming debt-ceiling vote to force tough and enforceable limits on government spending and debt. Voters hate the idea of raising the debt ceiling, and that leverage can be used to build a legal framework to force President Obama to the table.

Republicans should aim to pass a balanced-budget amendment to the Constitution in return for raising the debt limit. The amendment itself is enormously popular. Obama can score an economic, political, and policy trifecta by coming out in support of it. The stock markets will soar on the news that the political system can escape gridlock and avoid a fiscal crisis. With surging confidence about our fiscal future, investment and the economy will boom and unemployment will fall. Political independents will be drawn to President Obama, congressional Republicans, and moderate Democrats, dramatically improving their political prospects next year.

If a balanced-budget amendment is passed and states begin to ratify it, that will put enormous pressure on Obama and Congress to begin its implementation. It will finally force both sides to confront entitlements and nonessential discretionary spending.

— David Keating is the executive director of the Club for Growth.

PHIL KERPEN

Government spending has brought us to a genuine crisis point. The question is whether we’ll enact the fundamental reforms that will allow us to cut spending in a positive, pro-growth, pro-worker way or whether we will allow a bond-market crisis to precipitate a crash program that would almost certainly include economically disastrous tax increases.

Meanwhile, states face their own budget crises, driven largely by Medicaid obligations (made worse by maintenance-of-effort requirements in the stimulus bill and in Obamacare), which are already breaking many states and will break all the states in the next few years if the are no reformed.

It’s important to remember that Medicaid, unlike Social Security and Medicare, is not a universal entitlement program. It is a means-tested, state-administered welfare program. Block grants are the proven solution for reforming such programs.

The Ryan budget does the exact opposite of what the stimulus bill did: Instead of sending federal funding only with strings attached, in order to force higher state spending, Ryan’s budget would transform Medicaid into a finite block grant to states with no strings attached. The block grants would allow states to run their own programs, innovate, and implement needed reforms. If a state can operate its program more efficiently, it can keep the leftover federal dollars. Incentives are aligned.

 

Perhaps the greatest bipartisan policy success of the 1990s was repealing the old Aid to Families with Dependent Children and replacing it with finite block grants to the states, which allowed states to innovate, to improve benefits for the truly needy, and to shrink the welfare rolls — not, as the Left had warned, by kicking people out into the streets, but by getting them into the workforce.

Block-granting Medicaid, as Ryan has proposed, would repeat that success on the biggest budget item now constraining the states, while simultaneously containing one of the federal government’s biggest fiscal challenges.

— Phil Kerpen is vice president for policy at Americans for Prosperity.

JOHN MAKIN

Paul Ryan’s proposed Medicare and Medicaid reforms are exactly the right way to approach major deficit reduction. The reforms, if enacted, would produce reliable, structural deficit reduction spread out over decades. Americans 55 and older are exempt from any program changes, so current retirees and those nearing retirement would suffer no interruption of benefits. Those who will be affected will have time to plan ahead for new programs.

The deficit reduction contained in the Ryan proposal is positive for the economy, accompanied as it is by tax reform — lower tax rates and fewer loopholes — of a sort that research shows can add about half a percentage point to growth, thereby helping reduce the debt-to-GDP ratio, the best criterion for measuring budget-policy sustainability. Rising global confidence that the U.S. government is finally serious about eliminating America’s debt buildup will keep interest rates from rising and thereby will further support growth.

 

Of course there will be opposition to an effort to shrink government. But the political backlash will be limited by a growing conviction among voters that government and government debt are growing too fast. Exempting those 55 and older from changes will be perceived as fair and so will garner support from the important demographic group — baby boomers — now entering or approaching retirement.

John Makin is a resident scholar at the American Enterprise Institute, where he writes the monthly Economic Outlook.

GROVER NORQUIST

Paul Ryan’s new roadmap is a game changer. While Obama has no plan other than to continue spending on autopilot after adding on Obamacare, the Republicans now have a real entitlement-reform plan that takes the lessons learned from the successful welfare reforms of the Nineties and extends them to Medicaid, food stamps, and other forms of welfare.

Obama created a spending problem that can only be measured in trillions. Paul Ryan has created a reform that will reduce spending by trillions. Not mere billions.

Ryan takes the 25 percent of GDP swallowed whole by Obama-level government and brings it down to 20 percent of GDP over the next decade. By reforming Medicare to create a defined-contribution program that is self-sustaining, he brings spending down to 14 percent of GDP by 2050. Ryan’s federal government is half the size of Obama’s in 2050.

Will the Ryan plan pass Congress and be signed by the president before 2012? Very unlikely. Obama and the Democratic Senate wish to move in the opposite direction. They wish to keep Obamacare rather than repeal it. They wish to maintain the welfare state unreformed.

Ryan’s budget and tax reforms give all Republicans, Tea Partiers, and independents a reason to vote in 2012 for a president and Senate that will pass the Ryan reforms.

The terrain of the 2012 election is now visible. Ryan’s low-tax, high-growth tax code — top rate 25 percent — coupled with reforms that reduce spending along the lines of welfare reform circa 1996, will compete with Obama’s policy of “full speed ahead,” which will bankrupt our future.

Obama has no plan. Ryan shows us a debt-free future and reformed and sustainable entitlement programs.

The danger, as always, comes from those who are in a hurry to “compromise.” Senator Coburn has been pushing a $1 trillion tax hike from the Simpson-Bowles commission proposal he helped write.

Ryan’s budget is all spending reform and spending cuts. Coburn’s “Gang of Six” budget is trillions of dollars in tax hikes over the next decades (at least $1 trillion per decade). And it requires that you to trust Democratic senator Dick Durbin to actually deliver spending restraint.

First Ryan must defeat Coburn and the effort to repeat the compromises (read tax hikes and no spending cuts) of 1982 and 1990. Then we defeat the Democrats.

Grover Norquist is the president of Americans for Tax Reform.

SCOTT RASMUSSEN

There is no way that Republicans can seriously tackle entitlement reform in this Congress. Such an effort requires presidential leadership, or at least a presidential campaign.

While House Republicans can’t bring about lasting change by themselves, however, they can start to change the debate.

Currently, only 41 percent of voters recognize that the majority of all federal spending goes to just three areas: national security, Social Security, and Medicare/Medicaid. If House Republicans accomplish nothing more than making people aware of this basic fact, they will have shown more budgetary leadership than has been shown by anyone in the political class for decades.

Additionally, few voters understand that the current system for measuring deficits and debt is a political tool created by Lyndon Johnson to hide the costs of his Great Society programs and the Vietnam War. It grossly understates the actual federal debt.

If the government used the same accounting principles it requires businesses to use, the total debt would be in the range of $76 trillion, not $15 trillion. The annual deficits would be in the range of $5 trillion, not $1.6 trillion. Those larger debt and deficit totals are the numbers we should be talking about.

In addition to leveling with the American people about where the money goes and how deep the debt really is, there is one other aspect of the debate that needs changing. And it’s not clear whether Paul Ryan or anybody else in Washington is ready to go this far.

Official Washington needs to recognize that the American people are the solution to the budget crisis and not a problem to be overcome. Voters are far more willing than their politicians to make major changes and face up to hard choices. And that applies to every aspect of the federal budget, including national security, Social Security, and Medicare/Medicaid.

— Scott Rasmussen is the author of In Search of Self-Governance and president of Rasmussen Reports.

RICK SANTORUM

The GOP should absolutely tackle entitlement reform — that was what so many of our team were sent to do last November, and that is what our public officials are obligated to do.

Yes, there will be political backlash — that is the culture we are up against, the culture of dependency and entitlement the Left has embraced and cultivated since the Great Society. But when we set out to take on welfare, we were told we could not do that either, and we did it with unified resolve and commitment. Now, over a decade later, we see welfare reform as the most successful government reform in our nation’s history.

We have also seen what happens when only some members of our party stand up to reform entitlements without a unified team behind them. In 2005, both Sen. Jim DeMint and I stepped forward to reform Social Security, but few in our party stood with us. The result was a unified chorus of attacks from the left, without a true organization to counter with the truth. That cannot happen again.

I applaud Paul Ryan for what he has drafted — it is the first fiscally sane document we’ve seen out of Washington in years. Yes, we start with his proposal, and we run it as our offense, because we should no longer be playing defense on the budget. Ronald Reagan once spoke of our party as the party not of pastels but of bold colors. Does anything require a recommitment to that call more than the present fiscal crisis? The lessons learned from our welfare-reform success and the Social Security–reform defeat should remain salient as we rightly stand up for fiscal sanity. Today, Paul Ryan is picking up that flag yet again.

— Rick Santorum is a former U.S. senator.

TEVI TROY

Paul Ryan’s “Path to Prosperity” gives a frightening overview of the debt crisis that is threatening to overwhelm us, coupled with a serious proposal for setting things right.

To some extent, the reactions so far have been predictable. Michael Cannon and David Brooks both praised it, albeit for different reasons; Ezra Klein and Josh Marshall condemned it.

What I found most striking about Ryan’s plan is his damning depiction of the Obama budget. As Ryan put it in a Wall Street Journal op-ed:

The president’s recent budget proposal would accelerate America’s descent into a debt crisis. It doubles debt held by the public by the end of his first term and triples it by 2021. It imposes $1.5 trillion in new taxes, with spending that never falls below 23% of the economy. His budget permanently enlarges the size of government. It offers no reforms to save government health and retirement programs, and no leadership.

This denial of the problem on the part of the president and his administration stands in stark contrast to Obama’s book The Audacity of Hope, in which then-senator Obama criticized President Bush’s budgets thus:

The result of this collective denial is the most precarious budget situation that we’ve seen in years. We now have an annual budget deficit of $300 billion, not counting more than $180 billion we borrow every year from the Social Security Trust Fund, all of which adds directly to our national debt. That debt now stands at $9 trillion — approximately $30,000 for every man, woman, and child in the country.

Somehow, the person who wrote that passage has now increased the annual deficit by more than $1 trillion over the $300 billion he (rightly) railed against, and he seems unwilling to address this issue in a serious way.

As for the politics of it, I have no doubts that the Democrats will demagogue the issue, but the recent elections give me hope that the same old “bash Republican cuts” playbook may be losing its effectiveness. What has long been a third rail — addressing the entitlement crisis — may be turning into a badge of honor, and ignoring the issue of our debt tsunami may be in the process of becoming the new third rail of the 21st century.

Tevi Troy is a senior fellow at the Hudson Institute.

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