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A Deal to be Done on Medicare and Health Reform
Posted by: | CommentsCould Congress replace the current Medicare system with a voucher program, as former Clinton budget director Alice Rivlin and House Budget Committee chairman Paul Ryan (R-WI) among others have suggested? It could if Republicans allow the 2010 health law to take effect and Democrats can bring themselves to stop defending a deeply flawed Medicare program.
In such a voucher system (sometimes called premium support), traditional Medicare would disappear. Instead, government would give seniors a subsidy they could use to buy private insurance. But such a plan could never succeed without a robust individual insurance market.
Get past all the nasty partisan rhetoric and it is pretty clear: The 2010 law—the Affordable Care Act—creates exactly the foundation for that market.
For vouchers to work, insurance companies would have to sell coverage at an affordable price to all, regardless of health status. Seniors would need a way to shop for insurance. To keep premiums reasonably priced, consumers would have to be required, or at least very strongly nudged, to buy coverage before they got sick. Finally, since premiums would still be expensive for older buyers, the government would have to provide seniors with a significant subsidy to make the product affordable.
As it happens, the first three elements are exactly the model of the ACA. The law includes insurance exchanges, a requirement that private insurers make coverage available to everyone regardless of health status, and the obligation that everyone have at least basic coverage. It even includes subsidies for some low-income buyers. Additional premium support for seniors would be the final piece of the puzzle.
Keep in mind that when Medicare was enacted in 1965, older Americans could not purchase affordable private insurance. There was no individual market for them and few employers offered retiree coverage. Medicare made insurance available to seniors, although through a system encrusted by disincentives to quality care.
Five decades later the market failures of pre-1965 remain. Eighty percent of those 65 and older suffer from at least one chronic disease and half suffer from two or more. Yet, there is still no functioning individual insurance market for people with pre-existing health problems. The Commonwealth Fund reports that nearly half of those with health problems reported they were either denied insurance, charged rates they could not afford, or had their illness excluded from coverage. And while some employers do sponsor retiree insurance, it is usually only for those under 65, fast disappearing, and increasingly expensive. As a result, dumping nearly 50 million Medicare recipients on to a non-existent private insurance market would be both treacherous for seniors and a political non-starter.
But once all the elements of the ACA were pulled together, there would be no need for Medicare. Seniors would be able to buy affordable private coverage through the same sort of exchanges as tens of millions of working people. Insurance companies would compete on benefits and price and, importantly, take on the burden of cost containment.
The idea is not as radical at it sounds. Today, in fact, millions of seniors participate in a similar model when they buy private Medicare Supplement (Medigap) insurance. Others have enrolled in Medicare Advantage plans—a private insurance alternative to traditional Medicare (although one where subsidies are far more generous than are likely under a broad voucher system). Federal employees, including members of Congress, are also covered by subsidized private insurance they buy through an exchange-like market.
Rivlin gets all this. But, oddly, while many Republicans support major Medicare restructuring, they are doing everything they can to destroy the very system of universal private insurance that would make vouchers feasible. The question to ask them: What private insurance structure do they imagine would replace Medicare? Somehow, I don’t think medical malpractice reform and health savings accounts will do the trick.
So here’s the first step to a deal: Republicans call a cease-fire in their partisan war on Obamacare and Democrats stop defending a Medicare system that is not only busting the budget but is failing chronically–ill seniors.
Building this structure will not be easy and many key details have to resolved. How big would subsidies be, especially for very poor seniors; what benefits would be offered; and how would the exchanges work for elderly buyers? Resolving these complex issues will take the best minds of both parties working together. Any takers?
The GOP Choice: Smaller Government or Lower Deficits
Posted by: | Comments“The goal is to reduce the size and scope of government spending, not to focus on the deficit.” Grover Norquist
You’ve got to give Grover credit. Unlike most everyone else in Washington, at least he says what he believes. In a remarkably candid interview with Ezra Klein at The Washington Post, the head of the anti-tax lobby Americans for Tax Reform beautifully described the challenge faced by Republican lawmakers today.
When the GOP was out of power, it could easily paper over a profound internal disagreement: Should Republicans be the party of small government and low taxes, or the party of fiscal prudence? At first glance, these principles sound like the same thing. But they are not. And how a deeply divided GOP chooses between them says everything about the likelihood of both deficit reduction and tax reform any time soon, to say nothing about the party’s political future.
It is much easier for Republicans to take Grover’s route and build a legislative strategy around the goal of small government and low taxes. They can focus on slashing regulation and corporate taxes (for which the business community will continue to show them the love) and on cutting a few high-profile examples of “waste, fraud and abuse” which will win them the support of many in the tea party movement.
Aiming to slash the deficit, by contrast, takes the GOP down a very different road. It carries significant political risk and, thus, requires much more courage. That’s because cutting regulation and waste reduces the deficit by depressingly little, while slashing taxes almost always makes fiscal matters worse.
There is no evidence to support the old supply-side theory that major cuts in federal taxes increase revenues. Similarly, Grover’s claim that government can discourage spending by slashing taxes (aka starve the beast) got a real world test during the presidency of George W. Bush, who cut taxes, but also spent like the proverbial drunken sailor, fathering a huge new Medicare drug benefit and fighting two costly wars. The result: Bush and Congress turned a budget surplus into a $458 billion deficit. It turns out that one doesn’t need to tax and spend when one can more easily borrow and spend.
That leaves only politically unpleasant choices. Politicians who are serious about deficit reduction, rather than modest cuts in the size of government, have no choice but to confront middle-class entitlements such as Medicare and Social Security, and support tax increases within a tax reform bill.
Based on the usually reliable rule that it is always best to judge a politician based upon what he does and not what he says, most Republicans remain squarely in the smaller government and lower taxes camp. Just look at their unanimous support for extending all the Bush-era tax cuts and their current focus on cutting only a narrow slice of domestic spending. Still, a handful of GOP pols (such as Indiana Governor Mitch Daniels) are thinking more broadly. I suspect Republicans will be fighting this internal battle throughout the upcoming presidential primary season. Watch closely to see how it turns out.
Conrad Builds a Case Against Tax Subsidies
Posted by: | CommentsInteresting to see Senate Budget Committee Chairman Kent Conrad (D-ND) working hard to build a case for trimming the $1 trillion in tax breaks that infect the revenue code. Yesterday, as part of that effort, he brought in a broad range of tax experts to testify before his panel. They agreed that many of these preferences (aka tax expenditures) must go—although they were hardly on the same page when it came to which ones or what to do with the money.
In the normal course of events, the budget committee has little to say about tax preferences, although as a member of the Finance Committee, which does have jurisdiction, Conrad is not without influence. And he seems much more enthusiastic about tackling the politically thorny deductions, credits, and exclusions than Finance panel chairman Max Baucus (D-MT). Besides, Conrad may figure that a framework for tax reform will be written in high-level talks between the White House and Congress—a process he’d clearly like to influence.
At his hearing, Conrad wanted to make four points—none new, but all worth repeating. The first is that many of these tax breaks are the functional equivalent of spending and should be treated as such. The second is that tax breaks can be a very inefficient way to deliver government subsidies. The third is that the biggest beneficiaries are often the wealthy rather than the middle class. The last is that eliminating or at least shrinking these benefits should be “at the heart” of any tax reform, with the revenues used to cut both rates and the deficit.
Conrad is a member in good standing of the so-called Gang of Six—a bipartisan group of senators struggling to find a consensus on deficit reduction. As a member of President Obama’s fiscal commission, he supported the controversial recommendations of panel chairs Erskine Bowles and Alan Simpson. And he is a lame-duck, having announced his retirement at the end of this Congress.
The former North Dakota tax commissioner is nothing if not persistent. For years, he and his ubiquitous charts and graphs have been a fixture on the Senate floor, as he warns about the dangers of the deficit. Conrad’s voice on the need to include revenue increases—in the form of cuts in tax preferences—is an important one.
As I noted a couple of weeks ago, three GOP senators—Saxby Chambliss of Georgia, Mike Crapo of Idaho, and Tom Coburn of Oklahoma (the three GOP members of the Gang of Six) have also been arguing for cuts in tax preferences. They have been much more circumspect about whether they’d be willing to use any revenues for deficit reduction but, in their way, they too are moving the debate forward.
In the currency of Capitol Hill, hearings are cheap. Votes matter more, and Conrad—who supports many farm subsidies and voted to extend all the Bush-era tax cuts last December—can be a situational fiscal reformer (not unlike other deficit hawks). But the record he’s building matters in the halting journey towards both a sensible tax code.