November 23, 2014

Washington Budget Report: May 22, 2012

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Alternative Scenarios Raise Caution About Medicare Projections

The Medicare actuaries produce "alternative illustrations" that show how those projections change under different assumptions.

The Medicare actuaries have released updated alternative scenarios for the program, providing data and analysis that underscore the possibility that its long-term costs could well turn out to be higher than last month’s annual report from the Medicare trustees indicated.

The trustees themselves acknowledged that “actual future costs are highly uncertain,” and Concord Coalition Policy Director Joshua Gordon sees “numerous reasons” to believe that the official figures released in April “do not give the full picture.”

In a blog posting today, Gordon explains some of the uncertainties that are highlighted by the actuaries’ scenarios.

Under the official projections, for example, Medicare growth primarily reflects the aging of the population and, as the result of the 2010 Affordable Care Act (ACA), only gradual increases in payments for health care due. But there are many uncertainties about the future impact of the law, and the actuaries’ alternative scenarios assume payments will not slow as quickly as the ACA envisioned.

The actuaries also take into account the cost of the “doc fixes” that Congress passes each year to avoid steep cuts in Medicare Part B payments to physicians. “The currently used formula, called the Sustainable Growth Rate (SGR), calls for ever-growing cuts that are so large they would be nearly impossible to implement,” Gordon writes.

Another concern: Restrictions on the Independent Payment Advisory Board that was created by the ACA could severely limit the panel’s ability to restrain Medicare costs.

So under certain assumptions, the actuaries say, by 2030 Medicare costs could equal 5.8 percent of the economy (GDP), compared to the estimate of less than 5.3 percent in the trustees’ report last month. The actuaries project a figure of nearly 10 percent of GDP in 2080, compared to just under 6.7 percent in the trustees’ report.

Gordon agrees with the actuaries’ warning that expectations of long-term cost savings in Medicare should, in their words, be “tempered by awareness of the difficult challenges that lie ahead in improving the quality of care and making health care far more cost efficient.”

Fiscal Summit Underscores Need for Reform

Former President Bill Clinton and House Speaker John Boehner were among the prominent figures in both parties who decried Washington’s unsustainable path at a “fiscal summit” last week.

The summit, convened by the Peter G. Peterson Foundation, included speeches, interviews, panel discussions and videos featuring Americans around the country.

There was general agreement that elected officials have fallen short in dealing with the nation’s fiscal challenges, including the rapidly growing federal debt and the pressures that are building on Social Security and Medicare. Democrats and Republicans offered starkly different perspectives and prescriptions, however, and there was widespread skepticism that Washington would reach any big agreements before the November elections.

Boehner drew considerable attention with a suggestion that he and other Republicans might risk defaulting on the federal debt unless Democrats agreed to spending cuts in some areas that would equal the proposed increase in the debt limit. While defaulting would be irresponsible, Boehner said, it would be even more irresponsible to raise the limit without budget reforms and dramatic spending cuts.

Republicans put similar conditions on increasing the debt limit last year but President Obama and other Democrats say they will resist such a deal this year unless it includes some tax increases.

Clinton, saying that both parties would eventually have to make compromises, suggested that Republicans were being unreasonable by saying that certain issues -- notably their resistance to additional government revenue – were “non-negotiable.”

He called for a “very tough deficit-reduction plan” that would take effect once the economy had strengthened. Without such a plan, Clinton warned, today’s low interest rates “could go up so fast you won’t be able to catch your breath, and everybody will say ‘Why didn’t we do this earlier?’ ”

While Clinton suggested that after the fall elections both parties would have incentives to make more compromises than in the past, others at the summit tamped down speculation about a broad budget deal in a lame-duck session this year. They included both Rep. Paul Ryan, chairman of the House Budget Committee, and Rep. Chris Van Hollen, the committee’s top Democrat.

Senate Rejects Budget Proposals in Partisan Votes

In a series of partisan and largely symbolic votes, the Senate last week rejected five budget resolutions introduced by Republicans. Three of the proposals were introduced by Senators Patrick Toomey (R-Pa.), Rand Paul (R-Ky.) and Mike Lee (R-Utah) and would have attempted to balance the budget within ten years, primarily using more severe spending cuts than those proposed by President Obama or assumed under current law.   

The plans assume some reforms to the tax system, such as eliminating a number of current deductions and credits.  As is the case with the House-passed budget resolution, however, revenue produced in the Senate Republican plans would primarily be used to lower tax rates rather than to reduce the deficit.

The Senate also considered the House-passed budget resolution and a proposal that Sen. Jeff Sessions (R-Ala.) introduced and said was based on assumptions included in President Obama’s FY 2013 budget request.

All five proposals were rejected in procedural votes.  Senate Majority Leader Harry Reid has stated that he will not bring a Democratic budget resolution to the floor this year and has argued that it is not necessary due to budget caps in last year’s Budget Control Act. Earlier this year, Senate Budget Committee Chairman Kent Conrad introduced a proposal based on the work of a majority of the Simpson-Bowles commission, though the committee has not yet voted on his proposal.

The Concord Coalition has said the Senate should approve a budget resolution this year that places the nation on a fiscally sustainable path. A responsible proposal should consider everything to be on the table for deficit reduction, including entitlement programs, revenues, domestic discretionary spending and defense.

Some Lawmakers Take Constructive Approach

Washington faces big decisions this year on budget issues that include tax cuts, “automatic” spending cuts and an increase in the federal debt limit. But recent remarks by elected officials underscore the deep differences between many Republicans and Democrats.

Because neither party has the political strength and credibility to force through its own agenda, compromise and cooperation will be essential for comprehensive reform. It is encouraging, says Concord Coalition Executive Director Robert L. Bixby, “that some responsible lawmakers in both parties seem to understand this and are pushing for constructive action.”

In a guest column this week in New Hampshire’s Nashua Telegraph, Bixby notes that this group includes Rep. Charles Bass, a Republican from that state who co-sponsored a budget resolution based on the work of a bipartisan majority of the Simpson-Bowles commission.

The measure was introduced by Rep. Jim Cooper (D-Tenn.) and Rep. Steven LaTourette (R-Ohio). Concord has praised it because it would include savings from all parts of the federal budget as well as tax reforms designed to close loopholes, lower rates and still help slice future deficits.

In Concord’s public forums and deficit-reduction exercises across the country, ordinary citizens can discuss their different views on federal budget priorities and reach common ground. They often ask why more of their elected representatives can’t do the same.

“It requires political courage and a firm commitment to put broad national interests above all else,” Bixby writes. “Bass and the other House members who voted for Cooper-LaTourette showed such courage and commitment – even in the face of intense lobbying from special interests.”

Read more with Some Willing to Make Tough Choices on Federal Budget