Winning the real budget fight means cutting health care fat 

House Republicans and President Barack Obama agreed to $4 billion in cuts for fiscal year 2011. The spending reductions were part of a stopgap continuing resolution that will fund the government through March 18. True, $4 billion may seem small when compared with a $1.5 trillion deficit, but don’t forget that these are the first real-time cuts in government spending in modern memory.

The two parties are already negotiating on a follow-up resolution that (we hope) will cut spending further while ensuring government operations through the end of the fiscal year. And the sooner fiscal year 2011 is behind us, the better, for it will have cleared the decks for a more important fight: next year’s budget.

The 2012 budget matters about entitlement spending. Congress has shown a willingness to reduce discretionary spending, but it could eliminate every last dollar spent on defense, education, welfare and the environment, and America would still be headed toward insolvency. A bike path in Dubuque is not going to break the bank. The main drivers of our growing national debt are Medicare, Medicaid, Social Security and interest payments.

With common-sense changes in the architecture of the three entitlement programs now, we can avoid cutting benefits for retired Americans or those near retirement while preserving the safety net for future beneficiaries and eventually getting our debt under control. The alternative, which politicians in both parties have been pursuing for decades, is to do nothing while the problem grows worse. Social Security, Medicare and Medicaid cannot live forever in their current form. Either we make the necessary adjustments ourselves, or the bond markets will force them on us. And that could get ugly.

Having pledged on Feb. 15 to “include real entitlement reforms” in the upcoming budget, House Republicans now have to show the country how to avoid a future when Social Security, Medicare and Medicaid consume the federal government and the American economy. And they have to do that without relying on budget gimmicks and bookkeeping tricks stolen from the Enron Guide to Double-Entry Accounting. Otherwise they’ll be laughed out of the room.

The good news is that there’s a consensus about which reforms are necessary.

Begin by focusing on the expensive health care programs: Block-grant Medicaid to the states while suspending the Maintenance of Effort regulations that tell governors how to spend the money they receive from Washington. Allow the governors to use the block-grant money to set up private exchanges where Medicaid recipients use benefits to shop for private insurance plans. Cut the red tape in Medicare that prevents doctors and hospitals from finding new ways to treat patients at a lower price. For Americans 55 or younger, gradually move to a system where patients use a fixed Medicare payment to choose the approved plan that’s best for them. This is the bipartisan approach proposed by House Budget Committee Chairman Paul Ryan and economist Alice Rivlin, a Democrat.

This article appeared in The Weekly Standard.

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