UPDATE 3-US House Republicans back away on Medicare overhaul

Thu May 5, 2011 4:44pm EDT

* House panel won't advance Medicare plan

* Ryan sees no room for deal until after 2012 election

* Pragmatic tone taken as deficit talks begin (Recasts with new material)

By Donna Smith and David Morgan

WASHINGTON, May 5 (Reuters) - Congressional Republicans on Thursday backed away from a contentious plan to overhaul Medicare that President Barack Obama and fellow Democrats have turned into a weapon against them for next year's elections.

House of Representatives Ways and Means Committee Chairman David Camp said his panel will not advance a Republican proposal to privatize Medicare for future retirees because it stands no chance of getting passed by the Democratic-led Senate. But Camp said the powerful tax-writing committee will act on any compromise reached on a deficit reduction plan.

"I'm interested in finding a way forward that will get signed into law," Camp told reporters at an event sponsored by Health Affairs, a health policy journal.

Camp spoke as Vice President Joe Biden began bipartisan White House talks on cutting the $1.4 trillion U.S. deficit. [ID:nN05283636]

The Medicare plan's author, House Budget Committee Chairman Paul Ryan, said Republicans hoped to achieve some spending cuts in negotiations but predicted that any sweeping changes to the popular health program would not be in play until after 2012.

"We're not under any illusion that we are going to get any grand slam agreement," Ryan said.

Obama has called Ryan's Medicare proposal "radical," saying it tries to solve the deficit on the backs of the poor.

Republicans, who control the House, have encountered voter anger over the proposal, which would phase out traditional government-run Medicare and replace it for future retirees with subsidies to purchase health policies from private insurers.

FACING POLITICAL REALITY

Camp and Ryan's comments suggest a new pragmatic tone by Republicans in budget negotiations taking place as Congress faces an Aug. 2 deadline for raising the $14.3 trillion U.S. debt ceiling or risk defaulting on its obligations, an outcome that could devastate world financial markets.

They are also facing the political reality that the Medicare plan will not pass the Senate and it has become a politically potent weapon for Democrats for the 2012 congressional and presidential election campaigns.

Fifty Senate Democrats in a letter to House Republican Leader Eric Cantor on Thursday voiced strong opposition to the Republican Medicare plan.

Ryan said in a speech to the American Council for Capital Formation that Republicans and Democrats were too far apart on how to slow the growth of Medicare and other government-run health programs to reach agreement before 2012.

"I think 2012 is going to be the ultimate decider of these things," he said.

Democrats have started running ads against some Republicans who backed the House Republican budget plan, which included the Medicare plan. They contrast Republican opposition to higher taxes for oil companies with a willingness to overhaul Medicare.

"GOP now stands for 'Gas and Oil Party' and 'Get Old People' simultaneously," said House Democratic Representative Ed Markey, referring to the Republican Party's nickname.

While a sweeping overhaul of Medicare has been set aside, Camp said it remains on the table. Rapidly rising spending for U.S. health programs threatens to overwhelm the budget.

"I am not going to take anything off the table," Camp said. He said Democrats need to come forward with some ideas.

The debt limit has been seen as a Republican lever for pressuring Obama and Democratic lawmakers into accepting deep cuts in federal spending.

Tea Party conservatives insist on tough spending controls even with no quick agreement on Medicare and other social programs.

"There needs to be some lines that kick in, so that ... you have automatic spending cuts" when spending reaches a certain level, Republican Representative Allen West, a member of the House Tea Party Caucus, told Reuters. (Additional reporting by Andy Sullivan and Richard Cowan, editing by Ross Colvin and Eric Beech)

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