Please ensure Javascript is enabled for purposes of website accessibility

Lawmakers Propose Sweeping Changes to Medicare, Medicaid, Social Security and Obamacare

By Sean Williams - Mar 21, 2015 at 4:06PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

In a rare move, House and Senate Republicans offered separate budget proposals this week, one of which called for sweeping reforms of America's most critical social programs. Find out how these fiscal 2016 budget proposals could affect you, and what you should really be focused on.

Source: Flickr user Ron Cogswell.

Americans witnessed history this week as both branches of the Republican-controlled Congress proposed split 2016 fiscal budgets. It marks the first budget proposal from Senate Republicans since 2006, with both proposals from the House and Senate following President Obama's budget which was unveiled in February.

At the heart of any budget, be it Democrat or Republican, is the need to bring in more revenue than is spent. However, agreeing on how to balance the budget has long been a sticking point between both political parties. Deficits are sometimes necessary to help stimulate the economy, but over the long-term they can be dangerous as our money owed and interest payments grow.

Yet, deficits are pretty much the norm for America. With the exception of 1998 through 2001, the U.S. government has spent more than it's brought in in each year since 1960, including deficits in excess of $1 trillion between 2009 and 2012. The latest budget proposal from the White House for fiscal year 2016 (Oct. 1, 2015 – Sept. 30, 2016) forecasts a deficit of $474 billion. While progressively lower than 2009's $1.4 trillion deficit, it's still a worrisome amount that, if left unchecked, could be damaging to future generations.

The House suggests steep budget cuts
With those figures in mind, on Tuesday the House of Representatives unveiled its fiscal 2016 budget proposal which, to put it mildly, looks to completely overhaul several key social programs, including Medicare, Medicaid, Social Security, and Obamacare. Its proposal will cut spending by $5.5 trillion over a 10-year period and generate a small budget surplus by 2025.

Source: U.S. House of Representatives via the Congressional Budget Office.

According to the House's proposed 2016 budget, nothing short of a repeal of the Affordable Care Act, which is best known as Obamacare, would suffice. The Congressional Budget Office in its latest revision has suggested that Obamacare will cost the federal government approximately $1.2 trillion over 10 years, albeit this is down from an estimate of $1.7 billion back in 2012. The Republican-led House's budget simply repeals the Act and the increased spending that would have come along with it.

Along those same lines, repealing Obamacare means less money being divvied out to states by Medicaid -- $913 billion over a decade to be precise. Republicans instead suggest shifting the control of Medicaid at least partially back toward individual states via block grants which allow federal money to be used for very specific purposes. In this case, not for the expansion of healthcare.

Source: U.S. House of Representatives via Social Security and Medicare Trustees.

When it comes to Social Security, the House didn't offer any specific plans other than to form a bipartisan commission to study the upcoming shortfall in the Old Age and Survivors Insurance Fund, or OASI. However, one thing was clear in its proposal: payroll tax revenue shouldn't be diverted from the OASI to the Social Security Disability Trust Fund, which is on pace to burn through its remaining reserves by next year. Shifting revenue is something that's been done in the past when one fund is running low on reserves, but If nothing is done to fix the problem Social Security disability recipients could see their benefits cuts in 2016. Keep in mind the OASI is also on pace to burn through its reserves as well by 2033.

But, the boldest budget suggestion from House Republicans involved a partial privatization of Medicare. House Republicans suggest that the Medicare Trust will be "bankrupt in 2030" if nothing is done. The House Republican's solution? Introduce flexible payment options for future Medicare participants in which they'd purchase health insurance on a private market using government subsidies in addition to traditional fee-for-service care. One thing the budget doesn't do is change the options for those near retirement or already retired who qualify for Medicare. The budget also calls for a crackdown on frivolous lawsuits against doctors, which could ultimately help control medical cost inflation.

The Senate's proposal: smoother around the edges, but similar on some points
Republican Senators presented their budget a day later, calling for $4.3 trillion in spending cuts over the next 10 years, as well as a balanced budget by 2025.

Source: U.S. Senate. 

The glaring difference between the House's and Senate's 2016 budget proposal is that the Senate has no intention of altering Medicare entitlements or Social Security. The Senate's budget suggests $430 billion in Medicare cuts over 10 years, but it didn't offer a specific plan on how that reduction would be achieved.

Though the Republican-led Senate's budget proposal was markedly different from the House's proposal, they did share some common ground when it came to Obamacare and Medicaid.

The Senate's proposal suggests that eliminating the Affordable Care Act would save a substantial amount of money. It also entails turning Medicaid into a block grant that can be used for only very specific purposes by states. By handing over administration control to the states for Medicaid the Republican Senate believes it could save $400 billion over the next decade.

Source: White House on Flickr.

The White House and President Obama fire back
It probably comes as no surprise that the White House and Democrats didn't agree with much of what Congressional Republicans had to present. According to White House officials, repealing the Affordable Care Act and cutting back on Medicaid funding would cause 37 million people to lose health insurance.

Additionally, President Obama weighed in with his thoughts,

"What we're seeing right now is a failure to invest in education, infrastructure, research, and national defense. All the things that we need to grow, need to create jobs, to stay at the forefront of innovation and to keep our country safe."

Three things you need to know
While I personally try hard to keep my finances and politics as two separate entities, sometimes the two are simply joined at the hip, as with any discussion involving overhauling key social programs, such as Medicare or Medicaid.

Reading both budget proposals can be nothing short of overwhelming, especially when you take into account the magnitude of the dollar amounts thrown around and their blatant differences in some key areas (e.g., Medicare and Social Security). But, what I'm here to tell you is there are really only three things you need to know following these budget proposals.

First, before you panic or cheer based on the proposed Republican Congressional budgets, understand that these are nothing more than proposals. House and Senate Republicans are still going to have to come together and attempt to work out a joint budget plan if they have any hope of their budget becoming a law. This isn't going to be an easy process with House and Senate Republicans disagreeing over a number of items, including defense spending caps, but it likely means that some degree of change is expected to both budgets. Does this mean Medicare won't be partially privatized? We'll have to wait and see, but the key point here is that both proposals are very likely to change, so don't take these proposals as set in stone.

Secondly, even though both budget proposals suggest the repeal of Obamacare, anyone who's enrolled for health insurance right now should be paying more attention to the Supreme Court case King vs. Burwell than any potential Republican-led fiscal budget.

Source: White House on Flickr.

King vs. Burwell is a case introduced by a handful of plaintiffs who allege that the federal government is acting outside of its power by granting subsidies to individuals signing up through Currently, 37 states have turned the reins of their healthcare marketplace over to the federally run, and close to seven out of every eight enrollees via have qualified for some form of financial assistance. If the plaintiffs prove victorious in this case -- a decision is expected in June -- millions of people will likely lose the ability to afford their health insurance plan and Obamacare's long-term survival will be severely tested. This is a far more pressing matter for all Americans.

Source: Wikimedia Commons.

Lastly, Congress' ongoing inability to craft a long-term solution for Social Security, regardless of what party is in control, suggests one thing: Americans need to be planning for their future without relying heavily on government-sponsored social programs.

Social Security, for instance, is only designed to replace about 40% of a retired workers' annual income. However, nearly half of unmarried beneficiaries rely on Social Security for 90% or more of their current income. With the OASI set to exhaust its reserves by 2033 this poses a truly terrifying scenario if nothing is done.

The solution? Americans need to think long-term and get started as early as possible investing for their future. Formulating a budget to save regularly, contributing to tax advantages tools, and investing in a true wealth creator like the stock market are all critical steps to ensuring you won't be overly reliant on social programs whose future is always seemingly up in the air.

Remember, this is just the first inning of a long back and forth game of budget proposals, but it's nonetheless one you'll want to pay close attention to.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/15/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.