August 21, 2014

Washington Budget Report: June 26, 2012

« Back to WBR Issue List

Sign Up to receive the Washington Budget Report »


More Work Ahead on Health Care Costs

The Supreme Court is keeping the country in suspense a little longer over its decision on the 2010 health care law. The ruling is now expected on Thursday, the last day of the court’s current term.

The law – seen by President Obama and other Democrats as a landmark achievement -- made numerous changes in the country’s health care system, increasing the number of insured Americans while attempting to curb rising costs. Republicans have called for repeal of the legislation, focusing particular criticism on the “individual mandate” requiring people to buy health insurance.

No matter how the high court rules, elected officials will need to focus greater effort on reining in health care costs in the future. The United States already spends far more on health care than other industrialized countries, and many experts agree that much of this spending is unnecessary or even counter-productive.

Rapid cost growth will put significant strain on the entire U.S. economy and, together with an aging population, is a key driver behind the projections of unsustainable levels of federal debt. Recent data indicates that some of this cost growth slowed because of the recession, but the long-term projections remain troubling.

So even if the Supreme Court leaves the law’s cost-containment provisions in place, elected officials will still have more work to do. If those provisions are thrown out, finding alternative ways to hold down costs will be even more essential – and should be done promptly, even in an election year.

Less popular features of the health care law were designed to make possible some of the more popular features. So in responding to the Supreme Court’s ruling, elected officials must resist the temptation to simply continue the popular ones without ensuring that they will be sustainable and responsibly financed.

The Global Economy’s Risks and Rewards

Recent research by economists with the International Monetary Fund highlights the increasingly complex web of connections among advanced and emerging economies – connections that hold both hazards and benefits.

Diane Lim Rogers, chief economist for The Concord Coalition, notes that cross-border financial connections can reduce an individual country’s vulnerability to local shocks. But when major economic players are involved, she says, significant financial risks can be quickly transmitted around the global system.

In a blog post yesterday, Rogers also pointed out that national economies are often fighting similar ailments.

“The U.S. is watching Europe with keen interest, not just because we are afraid of the negative spillover from a deeper European recession, but because European countries are sparring and struggling over how to get to greater fiscal sustainability at a time when their economies are so fragile,” Rogers writes. “Sound familiar?”

Leaders at last week’s G20 summit in Mexico emphasized the need for cooperation and collective action to promote growth. They were also mindful, Rogers writes, of the tension between short-term and long-term economic goals.

Senate Approves Bipartisan Farm Bill

In a 64-35 vote, the Senate last week approved bipartisan legislation to reauthorize farm programs for the next five years. The legislation covers a wide variety of programs administered by the Department of Agriculture, including those that provide farm income support and address issues such as food and nutrition assistance, land conservation, trade promotion, rural development, forestry, energy, research, horticulture, and crop insurance.

According to the Congressional Budget Office (CBO), the version of the bill reported by the Senate Agriculture Committee included total direct spending of $969 billion over ten years, which is $23.6 billion less than the spending assumed under current law.

Among the policy changes in the legislation is a proposal to terminate a program that provides annual direct payments to farmers and replace it with a program that would compensate farmers who receive lower-than-expected revenues. The bill also included cuts to the Supplemental Nutrition Assistance Program.

During floor consideration of the bill, the Senate adopted an amendment offered by Senators Patty Murray (D-Wash.) and John McCain (R-Ariz.) to require the Department of Defense, the President, and the Office of Management and Budget to release reports detailing the impact that sequestration -- automatic cuts -- will have on the federal budget. Because the Joint Select Committee on Deficit Reduction was unable to reach agreement on deficit reduction legislation, last year’s Budget Control Act requires $1.2 trillion in automatic spending cuts that will start to go into effect next year.  

 The House Agriculture Committee is scheduled to begin considering legislation next month.

 

Rivlin, Domenici Outline Bipartisan Proposals

In a Senate Finance Committee hearing last week, the co-chairs of a Bipartisan Policy Center panel discussed proposals to stabilize and eventually reduce the size of the debt compared to the economy.

The testimony came from Pete Domenici, a former Republican senator from New Mexico, and Alice Rivlin, former director of the Congressional Budget Office. In late 2010 their Debt Reduction Task Force produced a bipartisan plan for comprehensive, long-term fiscal reform that included revenue increases as well as spending cuts throughout the federal budget.

“We believe strongly that without fundamental reform in the tax code and in future entitlement benefits, America cannot avoid continuing the steady increase of our federal debt toward 100 percent of GDP in the next decade and 200 percent of GDP a decade later,” Rivlin said. “These are clearly unsustainable levels and normally associated with serious economic and financial difficulties for any nation that strays so far from fiscal responsibility.”

The task force made promising recommendations for a “premium support” plan for Medicare.  Under this proposal, recipients would choose whether to remain in traditional Medicare or get support from the government to help purchase private insurance.

“You cannot fix the budget without fixing, in some way, reforming Medicare,” Domenici said. “Roughly 10,000 people are enrolling in Medicare every business day. These are unstoppable trends.”

Robert L. Bixby, executive director of The Concord Coalition, also served on the task force.

Finance Committee Chairman Max Baucus applauded the group’s work. Although he expressed some concern about the Medicare recommendations, he agreed that the nation needed a comprehensive plan to lower deficits over the next 10 years and beyond. “The plan must stabilize and decrease debt held by the public as a percent of GDP,” Baucus said. “The plan should ramp up slowly to allow the recovery to continue.”