House GOP Leaders Target $1 Trillion Medicaid Cut

Thursday, 31 Mar 2011 03:02 PM

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House GOP leaders reportedly seek $1 trillion in cuts to Medicaid, the federal health insurance program for the poor and disabled.

The savings could come over 10 years and the plan appears in a draft of the Republican fiscal 2012 budget, reports Politico.com, citing GOP sources.

It’s less clear how to the savings would be extracted, but Rep. Paul Ryan, R-Wis., — the man behind the budget plan — has previously suggested that the federal government end hundreds of billions in state grants and instead give recipients $11,000 to buy private coverage.

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Paul Ryan (AP Photo)
Ryan told Politico in February that Medicaid and Medicare were in his sights for cuts.

On Thursday, the National Republican Congressional Committee issued a news release that included press quotes from Democrats favoring changes to Medicaid, including from Sen. Mark Warner of Virginia and Health and Human Services Secretary Kathleen Sebelius. The quotes were dated from a time when both Warner and Sebelius were state governors.

Any changes enacted in an eventual budget would be a huge shift for Medicaid. As it is now, the federal program covers a percentage of the states’ cost for providing healthcare insurance for the poor. If costs rise, a percentage calculation means rising costs for both the states and for the U.S. Treasury.

Under a cap plan, the amount of money provided would be fixed, although details are not yet clear. In any case, a shift away from a percentage model implies less money from the government to pay for future healthcare, thus the savings.

All of this is happening against a do-or-die struggle on the Hill to come to agreement on budget cuts or simply let the government shut down, an outcome some on Wall Street think would be the moral equivalent of a default on U.S. debt.

At some point between Tax Day, April 15, and the end of May, the United States is likely to hit its $14.29 trillion debt ceiling, a self-imposed spending limit that Congress must vote to raise.

“If the United States actually defaults on our debt it would be catastrophic,” JPMorgan Chase CEO Jamie Dimon said while speaking Wednesday to the U.S. Chamber of Commerce, warning that “all short-term financing would disappear” for U.S. companies, insurers, and for investors.

Meanwhile, the manager of the world’s biggest bond fund, Pacific Investment Management Co., now says that U.S. Treasurys “have little value” due to the country’s $75 trillion in unrecorded debt, five times the size of entire economy.

Bill Gross, in a monthly note to investors, said the figure includes bonds plus U.S. obligations for Social Security, Medicare, and Medicaid.

Without reform of these programs soon, Gross warned, expect inflation, devaluation of the dollar, and low or negative real interest rates.

Congress “must make ‘debt’ a four-letter word,” Gross wrote.

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