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The GOP is outlining future entitlement cuts

Rick Newman
Columnist

The Republican plan to repeal and replace Obamacare looks troubled. With a key report predicting it will cut healthcare coverage for 24 million Americans, the plan drafted by House Speaker Paul Ryan and backed by President Donald Trump may not muster the votes to pass Congress. It’s even possible Republicans could set aside plans to repeal Obamacare to focus on other priorities, such as tax reform.

But the GOP plan offers an important preview of changes in federal benefit programs that may be inevitable, and affect millions of Americans eventually. A key provision of the Ryan legislation, known as the American Health Care Act, or AHCA, involves cutbacks to Medicaid, which provides healthcare to the poor. The plan would cut $880 billion in Medicaid spending by 2026, forcing 14 million people out of the program, according to the nonpartisan Congressional Budget Office.

The AHCA would also cut federal subsidies established under Obamacare, which help lower-income people pay for health insurance. That and a few other provisions would reduce the rolls of the insured by another 10 million. All told, the CBO predicts the number of uninsured Americans would rise to 52 million by 2026, which is slightly higher than the number before Congress passed Obamacare in 2010.

Those sharp cutbacks in coverage could be the Ryan bill’s undoing, since several Republican senators say they won’t vote for legislation that reduces healthcare coverage in their states. That could bring the Senate tally well below the 50 votes needed for passage of the bill. But the time may not be far off when a more urgent budget crunch necessitates deep cutbacks somewhere—and today’s debate over healthcare reveals what the easiest targets are.

Where to cut spending?

The national debt is now $20 trillion, which is 105% of the nation’s GDP. Nobody’s sure when, but at some point Washington will hit its borrowing limit and have to start cutting spending. Four big programs—Medicare, Medicaid, Social Security and defense—account for about 60% of federal spending, so when it’s time for cutbacks, that’s where the big money is.

Of those four programs, Medicaid is probably most vulnerable, since the lower-income people it covers have less political power than seniors covered by Medicare or Social Security, or the muscular defense industry. So the Ryan plan is probably an apt preview of a more strenuous effort to cut Medicaid in the future. The first to feel the hit would be people trying to enroll in Medicaid for the first time, since part of the Ryan plan would limit new enrollees, while current enrollees age out of the program and join Medicare instead. There would also be caps on the amount of federal Medicaid payments to states, instead of the open-ended system in place now. That could force states to reduce what they cover under Medicaid and find other ways to shave costs for those who do have coverage.

A few states are already going further, which they’re permitted to do, since Medicaid is a hybrid state-federal program. Maine is considering a five-year lifetime limit on Medicaid enrollment for “able-bodied” people in its program, along with work and education requirements. A proposal in Kentucky would require Medicaid enrollees to work or demonstrate that they’re looking for work. At least 15 states require drug tests for various forms of public assistance, and Wisconsin wants to extend drug tests to people who receive food stamps, which would require federal approval. Seema Verma, Trump’s appointee to run the agency that oversees Medicare and Medicaid, favors such reforms and could ease rules on states to encourage more of them.

Reining in federal entitlements

Such tough-love provisions are generally considered the conservative approach, while liberals push for more generous aid to the needy. But the conservative view may become more mainstream, if budget pressures worsen, for one simple reason: middle-income taxpayers will bear the brunt of a budget crunch, with many supporting cutbacks that once seemed more affordable. Lower-income families pay modest taxes, and sometimes no taxes at all, while drawing benefits funded by those who pay more in taxes. Generous entitlements become less appealing when taxes have to go up to keep them in place.

It’s not hard to envision other new rules on aid that conservatives have long pushed for, such as tougher limits on Social Security disability payments, a prohibition on the use of federal food aid to purchase junk food and soda, and drug-testing as a condition to receive many types of federal subsidies. Some of these probably seem sensible to ordinary voters. The United States has a huge problem with obesity and diabetes, for instance, which costs one part of the government billions in higher healthcare costs. Yet another part of the government essentially subsidizes, through food aid, the consumption of sugary, processed foods that contribute to those problems. The government is arguably driving up its own—that is, taxpayers’—costs.

Medicare and Social Security are considered untouchable, but they may not be in a crisis. Serious budget hawks have argued for years in favor of modest increases in the retirement age, limits on the benefits paid to wealthy retirees and other prudent measures to put these two programs on sounder financial footing. If Medicaid gets whacked, other huge programs may have to bear some cuts, as well.

It’s notoriously difficult to take away a government benefit once it’s been granted, a political truism that has stood in the way of entitlement cutbacks for a long time. But someday the only choice will be tax hikes or spending cuts to get the federal budget under control, or some combination of both. The outline of the cuts is being drawn up now.

Read more:

Trump now owns Obamacare

Why Trump’s tax cuts are looking iffy

Trump’s absurd claim about the US labor force

Confidential tip line: rickjnewman@yahoo.com

Rick Newman is the author of four books, including Rebounders: How Winners Pivot from Setback to Success. Follow him on Twitter: @rickjnewman