November 26, 2014

Washington Budget Report: January 28, 2014

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The State of Fiscal Reform: Still Much to Do

With a sharp drop in the federal deficit last year and voters disgusted with Washington’s budget showdowns, there is a broad consensus among elected officials in both parties to shift the political spotlight away from fiscal reform efforts for a while.

President Obama could show real leadership by challenging that comfortable consensus in his State of the Union address tonight. That’s because our nation’s largest fiscal problems remain -- and solving them is essential to future economic growth and prosperity.

These problems include mounting federal debt, rising interest and health care costs, an aging population and a tax code that lavishes hundreds of billions of dollars a year in subsidies on favored individuals and industries.

Elected officials have also deluded themselves with unrealistic plans for deep cuts in only one part of the budget -- “discretionary” spending that Congress approves on an annual basis. Much more is required to put us on a sustainable course.

A return to “regular order” in the budget process would help. But tardy approval of this year’s spending has already thrown work on next year’s budget behind schedule; the administration plans to release its proposed Fiscal 2015 budget on March 4, a month late.

Also coming up: The Congressional Budget Office plans to release its annual Budget and Economic Outlook next Tuesday, providing the statistical framework for budget discussions in the coming months.

 

Lew Underscores Need to Raise Debt Limit Soon

Leaders in both parties say they don’t want to see the United States default on any of its financial obligations, but they have made no apparent progress towards raising the federal debt limit to avoid such a debacle.

In a letter to congressional leaders Wednesday, Treasury Secretary Jack Lew urged lawmakers to raise the limit by Feb. 7, when its suspension is scheduled to expire. If Congress does not, Treasury will use so-called “extraordinary measures” to postpone a default.

Lew cautioned, however, that such measures would buy less time than in the past for two reasons:

• The government pays out a large amounts of money in tax refunds in February.

• The extraordinary measures available in coming weeks will provide less borrowing capacity than the measures that have been used at other times of the year.

Last month Lew estimated that these special measures would prevent default through late February or early March. But he now says the latest data indicate that late February is more likely.

It is clear that the debt limit must be raised. Refusing to pay for policies that have already been approved will not make those policies more “fiscally responsible.” Instead, forcing a default on any part of the government’s obligations would damage the creditworthiness of the United States and risk harming the global recovery.

 

Skip Budget Gimmicks in Fixing Medicare Payments

Since 2003 Congress has enacted temporary “patches” to prevent cuts in Medicare’s physician reimbursements. This is necessary because of the Sustainable Growth Rate (SGR) -- a flawed formula for spending on physician services that requires unrealistically large cuts.

In April, a 24 percent cut is again scheduled. For months, however, momentum has been building in Congress for a permanent fix. Recently key committees in both chambers put forth proposals to create a new payment methodology.

Their general approach is to reward physicians based on their performance relative to like providers and services. This is intended -- with the help of more robust data -- to move away from fee-for-service and toward a value-based system with care-coordination incentives.

Last week the Congressional Budget Office (CBO) released 10-year cost estimates for proposals from the Senate Finance and House Ways and Means committees.

The House version would provide 0.5 percent payment increases through 2016, then freeze payments through 2023. CBO estimated its cost at $121 billion. The Senate bill freezes payments at 2013 levels but extends certain other health care policies. CBO says it would cost $112 billion.

Congress should not turn to accounting gimmicks to pay for the new proposals. There are policy options that could cover the costs and make other improvements as well, reinforcing some of the changes the SGR bills attempt to accomplish.

 

Oregon Medicaid Reforms Begin to Show Results

As more people gain health insurance coverage, policymakers should focus their efforts on making the health care system more efficient so it can meet the increased demand for services.

Oregon has experimented with payment and delivery reforms in Medicaid in ways that could serve as a model for possible solutions to this challenge.

In 2011, the state divided its Medicaid providers into coordinated care organizations serving 15 regions, with each CCO receiving a fixed amount of money to care for each patient.

By encouraging cooperation among providers and introducing patients to less expensive types of care, the CCOs have allowed Oregon to make progress towards higher quality care that leads to better health outcomes at lower overall costs.

So far the results have been encouraging; emergency department visits among Medicaid enrollees have declined since 2011, and spending on such visits has declined 18 percent.

States trying to improve their own Medicaid system should consider Oregon’s forward-thinking payment and delivery reforms as a model to produce savings and develop a more integrated and effective health care system.