Why the President’s Deficit Plan Falls Short of Real Reform
The President is scheduled to speak this morning to reveal his deficit reduction proposal. However, based on multiple reports in this morning’s papers, the President’s proposal is expected to fall short for several reasons. Social Security reform will be left OUT of the proposal, and an increase in the Medicare retirement age the President previously supported this summer may be excluded as well.
There are two fundamental flaws in the President’s thinking. First, the proposal will fundamentally avoid ANY changes to the Medicare benefit – except for some additional means-testing for wealthy beneficiaries, which the Administration will not propose initiating until 2017. In other words, all of the savings are on the provider side of the equation – likely imposing new price controls on doctors, pharmaceuticals, etc. A study by the Urban Institute this year found that the average senior receives tens of thousands, and in most cases hundreds of thousands, of dollars more in benefits than they ever paid in taxes. Yet the President’s proposal maintains the false conceit that seniors can continue to receive these benefits virtually unchanged – even though those benefits are unsustainable by ANY measure, regardless of how much the President proposes to raise taxes on the rich.
Second, the size of the savings – $248 billion in Medicare savings, and $72 billion in Medicaid savings, according to published reports – are incredibly small given the size of the two programs. Medicare and Medicaid will collectively spend $10 trillion over the next decade (not even counting the state portion of Medicaid spending), meaning the President is proposing to save only about 3% of combined federal spending on these two entitlement programs. Moreover, the supposed savings will be nearly matched by the size of the Medicare “doc fix” everyone knows Congress will have to pass. The President’s budget estimated the cost of a ten-year “doc fix” at $370 billion, and the Congressional Budget Office estimates the net cost at $297.6 billion over ten years. Virtually all of the President’s health care deficit reduction will be wiped out – unless Congress allows Medicare physician payment rates to be cut by 30% this January.
The news articles this morning make the motives behind the President’s proposal clear – political posturing. According to one former Administration advisor, “I think this is less ‘Let’s be the grownups in the room and start at the 50 yard line,’ and more ‘Let’s start on our side of the field.’” To put it another way, why did the Administration back away from true entitlement reform? Well, as one Member of Congress put it, the President’s failure to do so would “cancel out any bludgeoning that Democrats might give the Republicans over Medicare and Medicaid.”
In anticipation of today’s proposal, here is my missive from April summarizing the President’s last “deficit plan” (such as it was). Additional details about other deficit reduction proposals, some of which may be included in the President’s plan, can be found in the CBO Budget Options book released in March.
We will of course provide further information about the proposal as details become available.