White House Deficit Plan: Avoiding Fiscal Pain for Political Gain
The White House has now released its deficit reduction plan. Here are the topline points you need to know:
- As expected, the proposed health care 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.
- The ratio of tax increases to entitlement savings is nearly five to one – $1.5 trillion in tax increases to only $320 billion in entitlement savings – even though the President previously stated in July that we will not be able “to sustain that program [i.e., Medicare] no matter how much taxes go up.”
- 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. The President’s deficit plan “assumes legislative action to permanently” fix Medicare payments – but conveniently doesn’t suggest a way to pay for this $300-400 billion proposal. 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 proposal avoids ANY changes to the Medicare benefit until AFTER the President leaves office in 2017. Some of the proposals – instituting a home health co-payment to reduce fraud, additional means testing for wealthy beneficiaries, addressing the increase in Medicare spending that first-dollar Medigap supplemental coverage induces – are positive steps forward. But if the President believes in these proposals so much, why won’t he implement them NOW, to staunch the bleeding of a Medicare program that the President’s own Chief of Staff said would run out of money in five years – BEFORE 2017?
- The answer is simple – partisan politics has dictated the Administration’s strategy. As one Member of Congress put it, if the President had proposed a true restructuring of our unsustainable entitlements, that would “cancel out any bludgeoning that Democrats might give the Republicans over Medicare and Medicaid.”
- Between now and 2017 (i.e., after the President will have left office), all of the proposed savings are on the provider side of the equation – new price controls on pharmaceuticals, additional cuts in reimbursements to hospitals and other medical providers, etc. That’s not true reform – it’s merely re-arranging the deck chairs on a very leaky fiscal ship.
- The proposal attempts to maintain the fiscal fallacy that the existing Medicare program can be sustained solely by imposing new taxes on wealthy Americans. The underlying premise behind the proposal is that additional “tweaks” to provider payments can make the program sustainable – even though the fiscal structure of the Medicare program is fiscally unsound. As we previously noted, 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.
A detailed summary of the proposal will follow later today.