House Republicans have spoken and healthcare providers didn't like what they heard, but on this both sides can agree: The release of the GOP's 2012 budget last week started the conversation on entitlement reform in America.

For House Budget Committee Chairman Paul Ryan (R-Wis.), that conversation is past due, given that President Barack Obama did not address entitlement programs—which Ryan sees as the biggest drivers of the nation's debt—in the administration's fiscal 2012 earlier this year. The Budget Committee's plan, called the “Pathway to Prosperity,” attempts to do this by proposing massive changes to Medicare and Medicaid in a way Ryan says will reform these programs but providers say will dismantle them.

Released April 5 and passed by Ryan's committee the next day, the budget resolution proposes to transform the Medicare program into what its drafters call a premium support system. New Medicare beneficiaries beginning in 2022 would choose from a list of health plans, and Medicare would subsidize the plan. The committee's proposal for the Medicaid program would convert federal dollars to block grants for states, which Ryan said would give states more flexibility to tailor programs that suit their needs.

“Clearly, going to vouchers doesn't take into consideration the best use of the Medicare dollar or the Medicare population,” Sister Carol Keehan, president and CEO of the Catholic Health Association, told Modern Healthcare, referring to the Medicare proposal. Keehan and other healthcare providers also expressed extreme concern about block grants to states for Medicaid, which American Hospital Association President and CEO Richard Umbdenstock said he sees as a way of cutting the program.

According to the proposal, those changes would reduce Medicaid spending by $771 billion over 10 years and $30 billion from Medicare for that same period, compared with the current policy baseline from the bipartisan Congressional Budget Office. And it also seeks to repeal the Patient Protection and Affordable Care Act.

Don Moran, who served as executive associate director for budget and legislation at the Office of Management and Budget from 1981 to 1985, said it's hard to glean what the Medicare figures mean without more detail. Moran is the founder and president of the Moran Co., a health policy research and consulting firm.

“In particular, you can't tell how the presentation is affected by the way they allocate things between “Medicare” and “Dismantle the Healthcare Law,” Moran said in an e-mail about the budget's line items. “In their policy description, the ‘premium support model' model doesn't kick in until 2022. So policy changes other than that are driving the numbers within the 10-year window.”

Meanwhile, the budget proposal claims $1.4 trillion in savings by rolling back the ACA, though not all of it, as the AHA pointed out in a statement criticizing the plan. The proposal “wrongly rolls back expansions of health coverage to millions of people but keeps the $155 billion in reductions” to hospitals included in the law, according to the AHA.

The budget resolution also suggests repealing the Independent Payment Advisory Board in the law, and fixing the sustainable growth-rate formula, although it does not offer specific details on how it proposes to do this or how much it would cost. However, Eric Zimmerman, a partner with the law firm McDermott, Will and Emery in Washington, said budget resolutions are always high level and general in nature during the budget reconciliation process.

The plan's premium-support concept for the Medicare program has been around since the 1990s, according to Edwin Park, vice president for health policy for the Center on Budget and Policy Priorities, a liberal Washington think tank. Back then, former Sen. John Breaux (D-La.) and former Rep. Bill Thomas (R-Calif.) promoted the concept when they led the National Bipartisan Commission on the Future of Medicare.

There was never a formal recommendation, and the issue reappeared in the past decade, Park said. Congressional Democrats and some healthcare providers continue to call this model a “voucher system,” and contend that it takes away the guaranteed coverage the current program provides to beneficiaries.

“There's no dispute about this: Seniors under that proposal will no longer have the Medicare option,” Rep. Chris Van Hollen (D-Md.) said in a news conference. “They will be required to go into the private health insurance market and fight for a policy and try and get a policy when the funds, vouchers—whatever you want to call it—they're given are going steadily downward in relationship to the rising healthcare costs,” he said. “Everyone's payroll taxes for Medicare now and all of the premiums that seniors are paying for Medicare—where do they go? They go to the insurance industry that stands to make a bonanza out of this, and seniors are left on their own.”

According to the CBO's long-range analysis of the Republican plan—which Ryan requested—most elderly people would pay more under the proposal than they would under the current Medicare system. This is because private plans would cost more than traditional Medicare because of the net effect of differences in payment rates for providers, administrative costs and use of healthcare services, the CBO said, and the government's contribution would grow more slowly than healthcare costs. By 2022, the CBO estimates beneficiaries would pay 40% more than they do currently.

The plan would also raise the Medicare eligibility age to 67 from 65. The Center on Budget and Policy Priorities noted in a report that the proposal would leave 65- and 66-year-olds essentially without coverage—without access to Medicare or the insurance exchanges to be created by the Affordable Care Act.

In the Medicaid program, Park said, the changes in the plan would come at a time when the population is aging and healthcare costs are rising, so states would have to decide how to make up for that lost funding—which he said will likely be in the form of deep cuts to benefits, provider payment rates and eligibility requirements.

In a letter to House and Senate leaders last week, 17 Democrat governors said they oppose block grants, which they see as an attempt to shift costs to the states.

“A Medicaid block grant imposed unilaterally by Congress would cap the federal government's share of costs and provide fixed annual funding below the projected growth of program costs is simply unacceptable,” the letter said. “The inadequacy of funding would grow over time and would be exacerbated by unanticipated increases in healthcare costs or enrollment.”

Meanwhile, the leaders of the Republican Governors Association—Chairman Rick Perry of Texas, Vice Chairman Robert McDonnell of Virginia, Policy Chairman Haley Barbour of Mississippi and Vice Policy Chairman Chris Christie of New Jersey—sent their own letter to Rep. Ryan in which they expressed support for the block grant model, saying it would give them needed flexibility.

Dr. Bruce Siegel, CEO of the National Association of Public Hospitals and Health Systems, said he thinks Medicaid block grants would cause huge battles between states and would slash their programs significantly.

“I think the fear is money would be spent on things that aren't effective,” Siegel said. “The fear is money would go to the constituency that clamors the loudest, rather than those who need it,” he said. Medicaid, he added, is heavily focused on children. “But children don't vote,” Siegel said. “We would not want to see programs for children de-funded.”

Another concern for Siegel is accountability in the Medicaid program. The budget resolution says the state programs “will no longer be shackled by federally determined program requirements and enrollment criteria.”

“Without detail, we don't know to what extent those would be eliminated,” McDermott, Will and Emery's Zimmerman said of the program requirements. “You could assume the benefit and eligibility requirements would be left to states' discretion,” he said, adding that some states have been generous in this regard, while other states have not. He also said he thinks the Republicans' plan is likely to pass in the House, but that it won't receive serious consideration in the Senate.

Overall, though, House Republicans have placed on the table a conversation on entitlement reform. Moran, the former OMB official, told Modern Healthcare it's a reasonable start. The question now, he said, is: “Whose move is it next to state a different alternative?”