Closer look: Entitlement Spending in the Murray, Ryan, and RSC Budget Plans
By Christine Harbin
This is the latest in series of blog posts focusing on the federal budget proposals. The first focused on Chairman Ryan’s plan, the second on the Senate Democrats’ plan, and the third and fourth highlighted their differences on tax and spending policy.
Federal spending on entitlement programs—Medicare, Medicaid and Social Security—poses the biggest threat to the federal government’s finances. This spending is projected to skyrocket even further in the future, due largely to changing demographics and implementing the President’s onerous and expensive health care law. Three of the budget proposals that are circulating Washington right now present very different visions for these programs’ future. Here is a closer look at the differences between them.
For a high-level view, take a look at the differences in mandatory spending over the next decade. Mandatory spending is spending on programs that are required by law each year without appropriations, which includes entitlement spending. Medicare and Social Security make up the majority of mandatory spending, but the category also includes other social safety net problems, such as Medicaid, unemployment compensation, food stamps, and Supplemental Security Income (SSI).
The two Republican plans—one from House Budget Committee Chairman Paul Ryan and the other from the Republican Study Committee (RSC) that was released on Monday—both propose a number of changes that reduce entitlement spending, as reflected in the graph below. Under the direction of Senate Budget Committee Chairman Patty Murray, the Senate Democrats make no substantive structural changes to entitlement programs. This is why total spending on mandatory spending under their plan closely matches the CBO baseline.
We can drill down further to the spending projections for the major entitlement programs—Social Security, Medicaid, and Medicare.
Chairman Ryan and the RSC approach Social Security reform differently. Chairman Ryan’s budget punts the problem to President Obama to figure out, which is a concerning omission. The RSC’s budget makes two big changes to the program. First, it gradually raises the eligibility age for Social Security, until it eventually reaches 70. Second, it changes the way that the government calculates the cost of living adjustments (COLA) for Social Security payments. More specifically, it switches to chained CPI-U, which is a more accurate measure of inflation because it considers the choices that consumers make. However, this shift also introduces the specter of raising taxes.
The graph below reflects the differences in spending across the plans, compared with the Senate Democrats’ budget, which matches the CBO baseline because it includes no policy changes.
Notable differences across the plans also exist as they relate to Medicaid spending. As described previously, the Senate Democrats’ plan would leave Medicaid largely unchanged, so it matches the CBO baseline. Both Republican plans stop the Medicaid expansion under the President’s health care law and they also both propose turning Medicaid into a block grant. AFP has long supported block granting Medicaid, since it would give states the control and flexibility required to fix the broken program. Under Chairman Ryan’s plan, the block grant will see modest increases each year. Under the RSC plan, the block grant for Medicaid and CHIP funding is held constant at FY 2014 levels, which yields more savings against the baseline over the next 10 years.
Stark differences also exist between the Senate Democrats’ budget and the Republican budgets with regard to Medicare spending. The Senate Democrats’ plan closely follows the CBO baseline because it includes no significant reforms—as highlighted before. It raises Medicare payments to doctors permanently and reverses sequestration cuts to Medicare. Meanwhile, both Chairman Ryan and the RSC switch to a premium support model and push the eligibility age higher, to bring it in line with the new eligibility age for Social Security. The differences in spending between Chairman Ryan’s and the RSC’s plans will be minor over the next ten years, as shown in the graph below, but the RSC budget would likely spend less in the following years as more seniors select private-sector options for their health coverage.