House Budget Committee Chairman Paul Ryan (R-Wisconsin) has offered up a plan to do for Medicare what the 401(k) has done for pensions. Ryan proposes to privatize Medicare and turn it into a defined contribution plan — one with a lousy sponsor match.

Medicare’s current defined benefit would be replaced with a fixed contribution that seniors would use to buy private health insurance coverage on a regulated insurance exchange. But if their actual healthcare tab exceeds the payment value, they’d have to cover additional expense out of pocket. And eligibility for enrollment would rise from 65 to 67.

Ryan took pains announcing the plan today to note that the new plan would only affect people under age 55 today, and to assure seniors and boomers close to retirement that they’d continue to get Medicare under the current terms. But starting immediately, everyone in Medicare would face higher cost-sharing requirements and new limits on coverage provided by Medigap supplemental policies.

The centerpiece of Ryan’s plan is an income-adjusted subsidy that would be paid direct to whatever insurance company a senior selects to provide coverage. The subsidy would be increased annually by the rate of GDP plus one percentage point.

Bottom line: affluent seniors would have to dig deeper to fund retirement health care expenses; for middle-class and low-income seniors, the Ryan plan means financial disaster.

Read my full report at Reuters Prism Money.

Tags | Medicare