September 30, 2014

Obama Budget Offers Some Reform But Drops CPI Change

  • The federal budget is an expression of our country's values. Where we choose to spend and at what levels, how and who we tax, and the borrowing we...

Information released so far on the President’s proposed budget for Fiscal 2015 provides a mixed picture on fiscal reform.

The administration has unfortunately dropped an earlier plan to save money by switching to a more accurate measure of inflation, but it is continuing a worthwhile effort to reduce overpayments to Medicare Advantage plans.

“It looks like this budget, as is usually the case, will contain a mixture of sensible reforms and politically expedient omissions,” Concord Coalition Policy Director Joshua Gordon said in a blog post this week.

More budget information was released on Monday, when Defense Secretary Chuck Hagel discussed plans to reduce military spending in line with the 2015 budget cap set in a bipartisan agreement in December. Pentagon plans, however, still exceed limits set for subsequent years.

The administration’s proposed changes would include shrinking the Army to its smallest size since before World War II and slowing the growth of military personnel costs, including those for its Tricare health insurance plans.

President Obama, who will officially unveil his complete proposed budget next Tuesday, is also suggesting 1 percent pay increases for federal workers, including those in the military.

Last year his budget included a proposal to switch to a more accurate consumer price index known as “Chained CPI.” This would save money in Social Security and other spending programs with cost-of-living increases. Because tax brackets are indexed to inflation, government revenue would increase as well.

Some Democrats oppose the Chained CPI, and Obama’s suggestion of a switch to it last year did not lead to a “grand bargain” with Republicans on the budget. Still, his decision not to include the reform in this year’s budget is disappointing.

“The problem is that by giving in to those who label the government-wide inflation measurement reform a simple ‘Social Security cut,’ the administration appears to be validating the label,” Gordon says.

The administration deserves credit, however, for continuing efforts to save tax dollars by reducing overpayments to Medicare Advantage plans. These plans -- which allow beneficiaries to enroll in private insurance -- have been paid more per beneficiary than traditional fee-for-service Medicare would allow.

As health care cost growth has slowed, the administration says, Medicare Advantage should see reductions in spending similar to those in traditional Medicare.

“Like the suggested CPI change,” Gordon says, “this is a sensible yet politically perilous reform.”