By agreeing to balance the budget in ten years and to keep the amount of sequestration cuts in place (over $970 billion), the House Republicans have given themselves a tough budgeting mission. There is naturally a question as to whether this can be done and if what would be required to get to a balanced budget in 10 years will strike Americans as unreasonable or even punitive.
Let me begin with some Republican apostasy: We are nearly at the point at which it makes less sense to chop away at discretionary spending. Everyone who looks at this knows the real issue is entitlements, and, in fact, the problem of entitlements gobbling up the entire budget. To address a $16 trillion debt you really don’t need to eviscerate the National Park Service or the FDA or to take another whack at the defense budget. You may want to do these things for efficiency or policy reasons (e.g. reform defense contracting, streamline the drug approval process) but frankly some of this discretionary spending (e.g. science research, national security) is the better stuff that government does. So, yes, trim and economize, but let’s not kid ourselves that foreign aid or federal courts are the source of our financial woes.
We therefore return to the nub of the problem, entitlements. In previous House budgets Republicans sought protection from Medicare changes for everyone 55 years and older. The result was that entitlement reform didn’t get all that much bang for the buck and the additional years of interest on that 10 year bubble of spending was considerable. None other than the New York Times explained the issue in 2011:
Beside violating basic notions of fairness, the grandfather clause has the potential to slow economic growth. Many of today’s 55- and 60-year-olds are going to be on Medicare for a long time. If the program doesn’t change, they will run up trillions of dollars in medical bills. That money won’t be available for education, early child care, scientific research or high-tech infrastructure — all of which can lift growth. . . . A fairer, more fiscally conservative plan would not postpone dealing with Medicare.
In the middle of the election last year the Palm Beach Post presented a similar argument:
Maybe a person who is 64 and planning to retire at 65 should not be told he or she can’t get Medicare until 66 or 67. But a person who is 55 would have 10 years to prepare. And if means-testing ever is on the table as an aspect of reform – meaning that people with more money should have to pay more for their health care – why should people who are 55 or 65 not be included? Exempting people 55 or older from any cost-cutting changes means that younger workers will have to bear a greater burden. The argument for exempting older workers is that they haven’t had time to plan for higher health care costs. In many cases, that would be true. We don’t want retirees to have to choose between paying the mortgage and buying their prescriptions. But what about retirees for whom the choice is between cutting a few days off a European vacation and paying more to make Medicare solvent?
So certainly one way to get to a balanced budget faster is to accelerate the entitlement reforms for the rich elderly. Really, how much lead time does Warren Buffett need to start paying for some of his own health care?
Then there is the proposal from Sen. Orrin Hatch (R-Utah). He set out five ideas: 1) Increase the Medicare eligibility age from 65 to 67 by gradually adding two months each year; 2) limit supplemental Medicare Insurance plans (“Medigap plans”) by preventing them from covering initial out-of-pocket expenses for seniors, thereby reducing over utilization and Medicare costs; 3) “Streamline complicated Medicare cost-sharing into a single combined annual deductible for both Medicare Part A and B services, establish a uniform coinsurance rate for amounts above the deductible, and institute an annual catastrophic cap to financially protect seniors in cases of serious health events”; 4) premium support plan to allow competitive bidding on health-care plans for seniors with the added benefit that seniors “who choose plans that cost less than the government payment would get the difference back through lower premiums or additional health benefits”; and 5) per capita caps (“similar to a proposal put forward by President Clinton in 1995”) which would set some spending limits “adjusted for patient health condition. (“the federal government would also work with the states to set clear, transparent goals and then monitor specific metrics on quality, access, and coverage”).
As Hatch points out each of these were suggested by bipartisan commissions or groupings of lawmakers. They are meaty and realistic proposals that will yield substantial savings. And if we began implementing them sooner (perhaps immediately for the very wealthy) we would maximize savings.
We will see what the House comes up with, but these provide a number of ideas for garnering more savings quicker, thereby getting the benefit of reduced interest payments. House Republicans should also not be shy about taking away the grab bag of special tax favors and “expenditures” the White House stuck into the fiscal cliff deal. If the president wants some more revenue, there is the place to get it.