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What’s the Ryan Plan, and how will it affect senior citizens’ finances?

Aug. 28, 2012
Personal Finance
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Republican vice-presidential candidate Paul Ryan is the author of a set of conservative budget proposals that have been around in one form or another since 1997, and have twice been passed by the House of Representatives. While presidential candidate Mitt Romney has said that he has his own plan, and has not endorsed every element of Congressman Ryan’s work (which does not really amount to a detailed budget at this point) it’s likely that many parts of the plan will become part of the Republican platform for the coming election.

The most recent version of Mr. Ryan’s plan is lengthy and occasionally obscure, and – like many such proposals from both parties – it proceeds from assumptions that are readily challenged by its opponents. It would, however, affect all Americans, from the most comfortable to the most needy.

Mr. Ryan’s proposals are lengthy and overarching, so I’ll confine myself to listing some basic facts about how the plan would directly affect seniors, along with a bit of informed speculation about how things might play out for us. I urge interested readers to evaluate the analyses made by such impartial sources as the Congressional Budget Office (CBO) and the Center for Economic and Policy Research, and discussed in reliable public media such as the New York Times and the Los Angeles Times.

The LA Times recently printed a concise summary of the overall effects of Mr. Ryan’s plan. I don’t believe that either side would call this an unfair characterization. Indeed, these are goals which Mr. Ryan has explicitly endorsed as essential for the country’s long-term fiscal health:

“Under Ryan’s plan, which has passed the Republican-controlled House twice in slightly different versions, the Internal Revenue Service would tax the wealthiest Americans less, but many of the poorest ones more; Medicare would be transformed; Medicaid would be cut by about a third; and all functions of government other than those health programs, Social Security and the military would shrink to levels not seen since the 1930s.”

But what’s in it for seniors?

First of all, if you’re on Medicare right now, the program won’t change. Well, not in its basic outlines, but there’s one detail you might be interested in. Remember the “donut hole” – the space between the drug costs Medicare covers and what it will eventually resume paying if you’re really, really sick? Those of us who never hit that advanced level of need used to have to pay the intervening costs ourselves, but under Obama’s healthcare plan the government picks up the tab. Since Mr. Ryan’s plan, dubbed “Path to Prosperity,” repeals Obamacare, the donut hole will be back.

If you were born after 1956, however, Medicare is a whole new ballgame. You’ll receive a yearly stipend (called “premium support”) to be spent on healthcare; you can spend it on Medicare or on a private plan. That payment would rise with the rate of inflation – not the rate at which healthcare costs are increasing, which is higher. When the money’s gone, you’re on your own – and impartial observers envision an expanding gap between your costs and your stipend. That’s the idea: the government will be spending less on healthcare. One bright spot: the very sick and the very poor will receive a bit more.

Overall, the CBO projects that under Mr. Ryan’s plan, we seniors, who have been responsible for some 25% of our health-care costs, would eventually have to pay as much as 68% of them. One more cost-saving measure: the eligibility age for Medicare will gradually rise until you’ll have to be 67 to qualify – not 65, as it is now.

And then there’s the joint federal/state program called Medicaid (“Medi-Cal” in California). Some of us may never need it; the six million or so who do are poor and/or in nursing homes. The Ryan plan cuts Medicaid funds by one-third, and turns the rest over to the states to distribute; the idea is that the states will do a more efficient job of it, and the hope is that they’ll make up the missing third themselves. In today’s financial climate, however, it’s unclear how many states could afford to fill in those missing bucks. Moreover, according to the CBO Mr. Ryan’s plan would cut federal Medicaid funding by half by 2050. Doesn’t sound like a good time to be down on your luck.

But the election’s not tomorrow, and there are lots of details to be hammered out – many of which may not actually be addressed until after the election. And remember that Mr. Romney, who will make the final decisions, hasn’t really signed off on any of his running mate’s proposals yet. We’ll undoubtedly learn a lot more about the risks and rewards of those proposals in the coming weeks – and I’ll be here to keep you up to date.