‘Fiscal cliff’: Do Democrats have a plan for cutting entitlements?

December 5, 2012

Nicholas Eberstadt: Once upon a time, people in Washington said the business of America was business. Nowadays, as just about everyone in our town knows, the business of Washington is actually entitlements. 

Government transfer programs currently account for 2 out of every 3 dollars of federal spending (even more if you add in the cost of administering them), and roughly half of all Americans now live in homes that receive entitlement benefits. In other words, the federal government has become (more or less) an entitlement machine, and recipients of entitlements program have become Washington’s single largest potential constituent group. (Now, class: can anyone explain why elected officials in Washington seem so totally terrified by entitlement reform?)

Honestly: does anyone really think our government safety net (dispensing nearly $2.4 trillion—almost $8,000 per man, woman and child in America—each year in money, goods and services) is stretched so thin today that there is nothing—nothing—of any significance that our two parties could agree to cut?

Here’s one suggestion: how about agreeing to get serious about disability reform? 

Just about everyone who has looked at our governmental disability programs agrees they are out of control. Disability payments have exploded over the past generation—our Social Security system paid out $135 billion to 8.8 million recipients in the past fiscal year alone. More astonishing, HHS estimates that more than 12 million working-age Americans got some sort of government disability payments last year. By those numbers, there are more disability payees than paid workers in our entire manufacturing sector! And while we lack accurate figures on the scale of abuse and gaming in our disability system, there is no doubt that such problems are pervasive.

I submit that there is enormous scope for a popular and bipartisan “disability reform” effort today, akin to the “welfare reform” enacted back in the 1990s. But I wonder: is Washington today too dysfunctional to seize even this “low-hanging fruit” in the greater forest of entitlement reform?

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Zerlina Maxwell: Here we go again. Each side has staked out its previous position. On one side are the Democrats, fresh off an electoral victory, with a mandate to raise taxes on the rich. On the other, the Republicans, fresh off defeat with no mandate. It’s peculiar then, that anyone is insisting that Democrats detail any proposals with regards to entitlement cuts. This unpopular move isn’t something the side with leverage should be forced to do.

If Republicans want cuts to entitlement spending included in a fiscal cliff deal, then they should be the ones to propose those cuts and own the consequences. Elections have consequences. Voters didn’t vote to increase the Medicare eligibility age or to cut Medicaid, and social security benefits, they voted to raise the tax rates on the rich.

Republican intransigence on the latter means that cuts have to come from elsewhere before the end of the year. They seem unwilling to budge on tax rates, instead targeting the social safety net. If it’s fiscally responsible to cut back on grandma’s monthly check or nursing home fee, Republicans need to put that on the table and take responsibility, particularly in the context of fiscal cliff talks. 

The fiscal cliff is simply the GOP taking advantage of a crisis in order to cut the three big  social safety net programs they’ve always railed against. Thus, Democrats must remain vigilant in their willingness to go over the cliff, instead of taking a bad deal. A bad deal includes painful entitlement cuts. If any of these cuts end up being included in a deal it better be Republicans who own it.

David Kendall: Let’s be honest. In any significant budget deal, at least one of the major safety net programs, Medicare, will have to be trimmed. What has us scratching our heads is that many Democrats see this as a concession.

Since Roosevelt’s time, Democrats have toiled to weave an adequate safety net, beginning with Social Security and most recently with Obamacare.  The new challenge is to keep these programs solvent and affordable.

Yet fixes are seen as a betrayal by many of the same progressives that support the programs. It shouldn’t be.  Dollars can be saved and progressive principles maintained for the two major pillars of a secure retirement.

Social Security, whether fixed during cliff negotiations or separately, is simple. For 50 years, the retirement age has been adjusted so the typical beneficiary receives full benefits for 18 years. That seems reasonable. Starting in 2028, we should gently raise the retirement age to keep pace with increases in longevity and maintain the principle of 18 years of full benefits for future retirees. In addition, by slowly increasing the threshold for income that is subject to the payroll tax we can come close to achieving solvency.

For Medicare we don’t need an overhaul, but rather a series of fixes that save money and improve quality.  End-of-life care has become a flurry of costly and painful medical treatments that most patients don’t want. Medicare should encourage doctors to talk with their patients about their care before that happens. Medicare should also pay more to doctors who keep patients healthy and less to those who only treat sickness. Private health plans have proven that small shifts from sickness care to prevention can save big bucks. There are dozens of other ideas that work.

This is why Democrats should run to, not from, entitlement fixes.

Zeke Emanuel: The war of words in Washington around entitlement reform frequently falls into diametrically opposed camps: those who are for leaving the social safety-net untouched, and those who aim to re-make the nature of these benefits. However, those of us who see this safety net as indispensable need a plan to preserve these programs to meet the purpose for which they were designed, for generations.

Real entitlement reform requires changing how every actor in the system—from providers of health care equipment to doctors to hospitals and Medicare beneficiaries—interact with Medicare. For businesses that sell hospital beds, wheelchairs or artificial limbs; companies that perform laboratory tests, and do other things; and other providers, we should stop having the government set prices and let the market work. Having these companies compete on quality and price would incentivize them to be more efficient.  Market-based price settings used in the Affordable Care Act have seen savings of more than 40 percent and should be expanded as the standard practice.

For doctors and hospitals, Medicaid and Medicare should stop paying them fees for service which incentivizes them to do more — and often unnecessary — tests and treatments.  Payment should be changed to episode (or so-called bundled) payment or global capitation, which motivates doctors and hospitals to focus on intervening before patients get sick and using tests and treatments that are endorsed by professional standards. Preliminary efforts in this area suggest savings of about 10 percent.

The program should also change how seniors pay for their care. Establishing out-of-pocket limits in Medicare would protect extremely sick seniors from paying high costs. First-dollar coverage should be prohibited for high-income seniors. Finally, wealthier seniors should pay more for their Medicare coverage for office visits.

These three changes are true entitlement reform – reform that actually modernizes Medicare and reduces the federal budget deficit. These reforms change the payment and incentives of everyone involved, and most importantly, they focus attention not on using more services but on keeping Medicare beneficiaries healthy and on using necessary services, thereby avoiding services that are wasteful but enrich providers. 

Where do you stand on entitlements? Share your thoughts below.

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Allen McDuffee | December 5, 2012