September 15, 2014

Washington Budget Report: June 17, 2014

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Misguided Strategy on VA Health Care

While Congress should ensure that veterans receive timely access to health care, a Congressional Budget Office analysis shows the high cost of a Senate plan to provide broad access to care providers outside the VA system.

This could cost up to an estimated $50 billion a year, more than double what the government currently spends on veterans’ care. The Senate approved its VA legislation last Wednesday.

Joshua Gordon, Concord Coalition policy director, notes that the Senate’s new “mandatory appropriation” -- which lawmakers have not figured out how to pay for -- would increase the federal deficit even more than Medicare’s prescription drug benefit does.

In addition, he argues in a new blog post, the whole congressional strategy is misguided.

“The first problem is that Congress, in trying to rapidly fix a flaw that has existed for decades, is charging an agency with substantial bureaucratic problems to implement a large new health care entitlement,” he writes.

He also points out that despite the recent concerns about access to the VA system, the care it provides is better and less costly than what is provided by the nation’s health care system as whole.

“Yet this new entitlement moves veterans’ care in the exact opposite direction, from one that delivers better outcomes at lower costs to a more inefficient patchwork of independent providers,” Gordon writes.

He suggests that lawmakers try again to figure out how to ease the waiting list problems in the system. That would give veterans “the top-quality care they deserve -- in a delivery system the private sector is hard at work trying to emulate.”

College Costs, Student Loans Are on Unsustainable Paths

Higher education costs have been in the spotlight recently as President Obama and Sen. Elizabeth Warren (D -Mass.) have pushed loan refinancing plans to ease the debt burden facing many young Americans and their parents.

While refinancing loans could help, a more comprehensive solution would be for Washington to work with colleges and universities to curb the unsustainable rise in college costs.

Obama last week acted to cap more student loan payments at 10 percent of a borrower’s income. But the Senate defeated Warren’s plan to let borrowers with long-standing government loans refinance at lower interest rates.

Over the last decade, college costs have grown much faster than both inflation and median household incomes. Meanwhile, the number of people with student loans has climbed to 39 million, up from 23 million, and overall student loan debt has surpassed $1 trillion.

The government, which subsidizes colleges and universities in many ways, must do more to encourage structural reforms in higher education to curb the rapidly rising costs.

Some analysts, in fact, warn that federal subsidies have encouraged waste and higher costs. In testimony to the Senate Budget Committee this month, Richard K. Vedder, director of the Center for College Affordability and Productivity, said:

“Indeed, a very good case can be made that federal student loans have fueled an academic arms race financed in large part by rising tuition fees.” This, he said, “has led to a proliferation in higher education bureaucracies, expensive recreational facilities, lower teaching loads that have funded largely unread esoteric research, bigger subsidies of intercollegiate athletics, and other spending unrelated to promoting the core university mission . . .”

CBO Warnings on Highway Trust Fund

The Congressional Budget Office (CBO) recently emphasized the need for lawmakers to soon address the revenue shortfall in the Highway Trust Fund, which must otherwise stop some payments for ongoing projects later this summer.

Congress, however, is still struggling to find a solution.

In a response last week to questions from lawmakers on the issue, CBO warned that the current mismatch between transportation spending and revenues “creates uncertainty for state and local governments and for private contractors that build and maintain highways.”

The budget office added that sudden changes in spending authority as a result of this mismatch could lead to planning difficulties for state and local authorities and delays in planned and ongoing projects.

For the next decade, the projected imbalance between trust fund spending and revenues is $167 billion.

In the last six years, Congress has transferred over $50 billion in general revenues to cover shortfalls in the Highway Trust Fund. That defeats the purpose of having a dedicated source of revenue -- the federal motor fuels tax -- and does not resolve the basic problem.

At its current level, the motor fuels tax can no longer produce enough revenue to keep up with spending. Lawmakers, however, have refused to increase the tax since 1993. If they continue to do so, they will need to consider other options.

So far lawmakers have only introduced short-term proposals that rely on unrelated items like postal service cuts or closing certain tax loopholes. These would do nothing to address the structural problems with transportation funding.