Ryan 3.0: A perfect 10?

It may sound strange, but budget season is almost upon us.  It sounds strange because thanks to Harry Reid and obstructionism in the Democrat-controlled Senate, every season has budget season for the last four years.  Americans have been forced to ride a roller coaster of artificial fiscal cliffs, tax-rate disasters, sequesters, and other artificial crises generating from Reid’s refusal to follow the law and follow normal-order budgeting for almost exactly four years.

Usually, both chambers have their budget resolutions passed by April 15th, although that does depend in part on the White House producing a timely budget request — and this year, Barack Obama seems to be going the full Reid and refusing to participate at all.  That hasn’t stopped House Budget Chair Paul Ryan from proceeding with his third formal budget proposal, which is still in the formative stages but will once again push for structural reforms in order to produce a balanced budget.

However, this time Ryan’s budget will put Medicare on a reform path that balances the budget in ten years rather than 25, after taking considerable flack from conservatives over the last two years for his previous efforts.  This time, Ryan had Republican moderates howling, according to The Hill:

Moderate Republicans fear the budget plan will violate the GOP’s pledge not to change Medicare for today’s seniors, which they continuously touted during the presidential campaign.

“A lot of people had made commitments at 55. In other words, in the campaign [Republican vulnerable members] said it wouldn’t affect your Medicare for retirees or near retirees for those 55 and up … and [if] this budget forces them to renege on that, that would be problematic for many,” a GOP lawmaker, who spoke on the condition of anonymity, told The Hill.

In addition to locking in the $1.2 trillion in sequestration cuts over the next decade, the Ryan 2014 budget would reduce growth in Medicare and Medicaid, as well as target other safety net programs like food stamps and school lunches. He plans to present his budget framework next week and put it to a vote before the House adjourns for Easter break.

Last night, however, Ryan’s team pushed back on the criticism.  Ryan preferred to save some extra money by aiming for a larger potential pool for reform, but the campaign pledge will likely survive:

Rep. Paul Ryan’s budget is now expected to exempt seniors 55 years old and above from his Medicare overhaul — despite his personal preference to raise that age to 56 — according to several GOP sources familiar with his plans. …

Ryan has been toying this winter with the idea of bumping the age exemption from 55 to 56 – a move that would have been intended to help prepare Republicans for more drastic future measures to save the health insurance program for the elderly. But moderates within the GOP would’ve balked at that prospect, after having told voters for several years that they won’t touch the program for folks 55 and older.

Earlier in the week, I reached out to Ryan’s office and a source on Capitol Hill to find out what direction Ryan plans to take.  He’s serious about a move to balance the budget in ten years rather than 25, and the same concept drives this plan as his earlier two, I report in my column this week for The Fiscal Times:

His first budget overhauled the approach to Medicare and Medicaid, relying on market-based cost containment systems to create a fixed-contribution system.  He assumed that private insurers would stabilize costs, which opponents almost instantly derided as “vouchers” – even though it used the same kind of exchange system for seniors that Barack Obama and Democrats had imposed for everyone else in the Affordable Care Act the previous year. Democrats created TV ads showing a Ryan look-alike pushing a wheelchair with an elderly woman in it over a cliff, in one of the least subtle attack ads of recent memory.

In the next budget cycle, Ryan adjusted the plan to address some of the criticism and to expand its support beyond the GOP. For a while, Ryan partnered with Senator Ron Wyden, a liberal Oregon Democrat, on Medicare reform that once again centered on a fixed cost to the government through insurance exchanges, this time with an option for traditional government-run Medicare.

Moving Medicare from a defined-benefit to a defined-contribution plan is the only way for the government to stabilize its costs for health care, and has the added benefit of spreading risk to private insurers who would have to compete for business in the same way Medicare Advantage worked before ObamaCare. In fact, as I point out, it uses the mechanism — government-managed exchanges for private insurance — that ObamaCare uses for everyone else in the US. It’s also much easier to apply means testing in this environment through scaled contributions (as ObamaCare also does with its scaled subsidies) than it is in the traditional defined-benefit Medicare plan, and Ryan’s plan will include means testing as part of the reform.

When I asked Ryan’s office for comment on the criticisms over raising the exemption age on the reforms, they offered a statement that didn’t directly address the question.  Instead, the statement affirmed Ryan’s commitment to delivering a “responsible, balanced budget, ” and issued this challenge: “After nearly four years without a budget, will leading Senate Democrats remain complicit in the looming bankruptcy of Medicare?” My other source told me that the communication to House Republicans earlier was intended as part of an ongoing collaborative process — a trial balloon, really — and that they had intended to adjust their approach after receiving feedback.

Pushing reform into a ten-year window requires more aggressive reform, but not really all that much more aggressive:

A House GOP aide later told me that nothing had yet been carved into stone, describing the luncheon meeting as part of an ongoing collaborative effort. The shift from a 25-year time frame to 10 years for balancing the budget required an accelerated reform schedule, but he also stressed the package wouldn’t contain any dramatic cuts or policy changes from the previous Ryan reform package.

And as I point out, the 10-year window is a lot more secure in ensuring that the changes take place, too:

The context of American credit has to be kept in mind as well. The prolonged trajectory to budget balance in Ryan’s previous efforts would not have done much to bolster confidence in the dollar, or credit ratings for US debt. Entitlement reform requires changes to statutes rather than annual budgets, so the cost savings in that action are more reliable, but future Congresses could still undo those changes depending on the politics of the time – and 25 years creates a lot of opportunities.

A 10-year window provides a much shorter time frame for vigilance and a much better chance for successful completion of the reform. The faster these costs come under rational control, the more quickly investor confidence will return, and economic growth may even end up accelerating the end of budget deficits.

Without having a solid proposal on the table, it’s impossible to determine whether Ryan is on the right path or not.  However, Ryan is one of the few taking his leadership responsibilities seriously and attempting to budget for long-term reform and fiscal sanity, rather than attempting to drive off one short-term political cliff after another for momentary political gain.  That much is worth celebrating and supporting.