Medicaid, Medicare Targeted in Rep. Paul Ryan's 2012 Bold Budget Overhaul

VIDEO: Budget Solution? Paul Ryans Path to Prosperity
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House Budget Committee Chairman Rep. Paul Ryan's 2012 budget proposal entails sweeping changes to Medicare and Medicaid that set the stage for a furious partisan battle and could change the face of the nation's health care programs for the poor and elderly.

"The Path to Prosperity," unveiled today, cuts the budget deficit by roughly $5 trillion over the next 10 years -- a staggering figure compared to the $1 trillion in cuts in President Obama's budget proposal.

The Ryan plan completely overturns the new health care law and proposes a major reform to Medicaid and Medicare, a move Republicans understand could be politically caustic.

"This is not a budget. This is a cause," Ryan said when asked today if his plan could be political suicide. "We are here to try and fix this country's problems. If that means we are giving our political adversaries a political weapon to use against us... shame on them. We owe it to the country to give them an honest debate."

Under Ryan's plan, Medicaid would switch to a block grant system, meaning the federal government would allocate money to states, giving them more flexibility in how they tailor their programs for the poor. Currently, the federal government matches every dollar that states spend on Medicaid and the formula varies from state to state.

Supporters of the plan say it eliminates the "one size fits all" approach that is burdensome on both states and the federal government. Opponents say such a move would signal the end of Medicaid altogether.

The last time Republicans proposed such an overhaul was in 1995 and it led to a government shutdown that lasted for 21 days and crippled important services. With heavy resistance from then-President Clinton and Senate Democrats, the proposal then never made its way past the halls of Congress.

Today, 19 percent of the U.S. population is on Medicaid, nearly half of whom are children.

The Medicare program would also undergo major overhaul. Senior citizens would be able to shop for coverage on insurance exchanges set up by their state, but instead of the federal government paying for every service as it currently does, each Medicare beneficiary would be alloted a certain amount of money based on their income.

The changes would take effect in 2022 and impact those who are currently 55 years of age or younger. Also starting in 2022, the age of eligibility for Medicare would increase by two months per year until it reaches 67 in 2033.

Ryan has touted the support of Democratic deficit hawks like Alice Rivlin, a former White House budget director in President Clinton's administration who worked with Ryan on a Medicare plan.

But Rivlin says she doesn't support Ryan's plan in its current form.

"The idea of premium support, even possibly the idea of block grants, if done right is the basis of crafting a bipartisan plan, but Ryan doesn't pretend to have done that. His is a Republican opening offer in a negotiation," Rivlin told ABC News.

"The basic problem with the Ryan plan is that it's a spending cut only plan. It has no new revenues," she added. "It doesn't help solve the deficit problem going forward. I'm a strong believer in whatever we do about reducing the rate of the growth of the debt has got to involve both the spending side and the tax side."

Rivlin, who supports the Democrats' and President Obama's health care plan, also says block grants for Medicaid would work but only if set up correctly.

"Block grants are a possibility but you have to be very careful that you don't allow states to back away from the responsibilities to low income people," she said. "You can't possibly get as great savings as Ryan thinks."

Medicare and Medicaid Key to Republican Budget Cuts

The non-partisan Congressional Budget Office said in a report today that under the proposal, the federal budget would show a deficit of about 2 percent of the GDP in 2022, a slight surplus in 2040 and a surplus of roughly 4 percent in 2050.

The proposal would reduce federal spending on Medicare, Medicaid and Children's Medicaid program to 5.5 percent of GDP in 2022.

"Much less uncertainty about future federal spending on Medicare and Medicaid would exist under the proposal than exists under current law," the report said.

Obama has acknowledged multiple times that the nation needs to tackle entitlement reforms, but his budget proposal released in February did little to address them. At the time, he said he was taking a "scalpel," not a "machete" to the budget to avoid too much pain.

Entitlement programs, though increasingly burdensome to the federal government, are coveted by Americans and any major cuts are unlikely to garner widespread support.

A Kaiser Family Foundation poll conducted in early January found that 47 percent of Americans did not want to see a reduction in Medicaid, while 56 percent felt that way about Medicare. An even greater number -- 64 percent -- did not support a change in Social Security.

About 60 million Americans rely on Medicaid and about 48 million seniors depend on Medicare for their health coverage.

Ryan's plan, which is likely to become a roadmap for Republicans, will be both socially and politically caustic, as the congressman has himself acknowledged.

"The Ryan plan writ large is switching the risk from government to taxpayer with both Medicare and Medicaid," said Ron Haskins, former White House and congressional advisor on welfare issues and currently the co-director of the Center on Children and Families at the Brookings Institute. "You're into a system now where the market is really playing a major role and the incentives have changed a lot. But the bottom line is that people are under greater risk than they were were under the Medicaid program."

"I think the guy is amazingly brave. It truly is one of the most decisive turning points in the financial history of the federal government, and it could explode. This could hurt Republicans," Haskins said.

Other proposals in Ryan's plan include:

Decrease in defense spending.

$30 billion reduction in farm subsidies over 10 years.

Federal worker pay freeze until 2015.

Federal workforce reduced, through attrition, by 10 percent by 2014.

Privatization of Fannie Mae and Freddie Mac.

Cap all non-security discretionary spending at 2008 levels.

Permanently extend all Bush-era tax cuts.

Reduces the corporate tax rate from 35 percent to 25 percent.

ABC News' Jonathan Karl contributed to this report.

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