Term Sheet

The latest on private equity, M&A, deals and movements — from Wall Street to Silicon Valley

GOP Medicare bet: There's a market for bold

May 30, 2011: 8:25 PM ET

Republican strategists have noticed that courage sells, even in blue states. Maybe the GOP should step up to the plate and acknowledge they want real reform for Medicare.

By Nina Easton, senior editor-at-large

FORTUNE -- Want to know why the federal government is shouldering a $14.3 trillion debt, why that debt could equal 77% of the total economy by 2021, and why we face market whispers of a looming "debt crisis" that could sink our nation's finances?

Paul Ryan

Love it or hate it, Paul Ryan has a bold plan.

Just lean in and listen to Bill Clinton's private, off-stage whispers last week to gladiator GOP House Budget Chair Paul Ryan -- care of ABC News. "I'm glad we won this race in New York," Clinton told Ryan at a Pete Peterson Foundation forum on the national debt. But "I hope Democrats don't use this as an excuse to do nothing."

While Clinton opposes Ryan's sweeping plan to revamp Medicare, the President who once declared "the era of big government over" knows that "doing nothing" is the current default position of his Democratic colleagues in the White House and on Capitol Hill as they prep for a difficult 2012 election amid a still stuttering economy. Last week's special congressional election in New York -- a Democratic victory built largely on accusations that Republicans want to gut Medicare -- is being trumped by liberals and much of the media as proof that serious efforts to contain entitlement costs is political folly.

Now listen to the words of widely respected House Minority Whip Steny H. Hoyer -- a Democrat known for his sensible centrism. Hoyer told the Washington Post that Medicare reform "needs to be on the table." But then he confessed that he doesn't want to risk a backlash by identifying specific changes. "That is the same mistake that Ryan made."

Wow, that's gutsy.

Gutsy on the part of Democrats might mean embracing their own serious reform. There are other reform plans out there, like the one proposed by the Committee for a Responsible Federal Budget to increase Medicare deductibles, coinsurance and co-payments. This would help control costs "by shifting costs from the taxpayer to beneficiaries, and by making beneficiaries more cost-sensitive and therefore more selective in usage of care," the committee says.

Another Medicare proposal gaining traction on Capitol Hill, crafted by Senator Pete Domenici of New Mexico, a Republican, and former budget director Alice Rivlin, a Democrat, would cap federal spending and include a voluntary premium support system -- providing subsidies to purchase private insurance alongside traditional Medicare. It's a less radical departure from the current system than the Ryan plan but can still save money.

But any shift away from the current system, now tumbling toward bankruptcy, will provoke powerful organized interest groups. The influential AARP has opposed premium support systems, and liberal activist groups are having a field day against Republicans who promote Medicare reform. They've produced a video of a look-alike Paul Ryan tossing Grandma out of her wheelchair and over a cliff.

And the union-backed Americans United for Change (first organized in 2005 to oppose President Bush's attempt at Social Security reform) attacked GOP Senators Richard Lugar of Indiana, John Thune of South Dakota, and Marco Rubio of Florida for voting to support Ryan's "radical" plan to destroy Medicare "while giving $4 trillion in new tax breaks to millionaires, big oil, and job-outsourcing corporations."

"Savage," "radical," and "mean-spirited" are among the favored Democratic Party labels for Medicare reform, while media allies like the Washington Post denounce Ryan as a "shameless demagogue." A political conventional wisdom is hardening around the view that Ryan's Medicare plan was the reason behind the New York special election loss-and that it will certainly hang as an albatross around the GOP's neck in 2012.

Republicans are betting, though, that there is a political market for bold. (Democrats might take note: Courage sells -- just look at New Jersey Governor Chris Christie). The 30-second case for Medicare reform is not hard to make: Absent reform, the system goes bankrupt in about a decade; a May 13 trustee report predicts that money slated for hospital care will run out in 2017. Doing nothing equals a death sentence for the system.

Far from treating Ryan like a pariah, all but five GOP senators last week voted in favor of moving forward to consider his Medicare plan (and one of those opposed, Rand Paul, didn't think Ryan's plan went far enough). And there are renewed efforts to recruit the young Wisconsin congressman for the 2012 GOP presidential race.

For Americans under 55, Ryan's redesigned system would provide subsidies -- more for those who are poor and in the worst health, less for the wealthiest -- to purchase private insurance in place of today's direct coverage. The plan is designed to contain costs by having insurers and providers compete for seniors' dollars -- lowering federal health care spending from 8% of GDP today to 5% by 2050.

You can argue about whether the Ryan plan imposes too much burden on seniors, and whether his specifics are the right one. But it's hard to argue in favor of anything that looks like the status quo. That's the direction Democrats who control the White House and the Senate seem to be heading.

That's the real Mediscare.

Posted in: , ,
Join the Conversation
Current Issue
  • Give the gift of Fortune
  • Get the Fortune app
  • Subscribe
Powered by WordPress.com VIP.