September 23, 2014

Washington Budget Report: April 2, 2014

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Ryan Budget Falls Short on Fiscal Sustainability

Today the House Budget Committee is considering Chairman Paul Ryan’s proposed budget for Fiscal 2015 -- a document that lays out Republican priorities but does not represent a realistic blueprint for progress towards a fiscal sustainability plan.

Concord Coalition Executive Director Robert L. Bixby says Ryan deserves credit for proposing a budget “in an election year when some may argue that it would be more convenient to remain silent.”

But Bixby adds that Ryan’s proposal, like President Obama’s budget, “is best viewed as a statement of party principle with little chance of moving the fiscal debate forward, much less of being enacted.”

Ostensibly aiming to balance the budget within 10 years without tax increases, Ryan’s plan calls for $5 trillion in cuts, including major changes in health-related spending.

Given the size and nature of the structural problems in the budget, the goal of eliminating deficits within a decade sets up some very difficult policy choices. A renewed focus on open-minded budget negotiations -- using policy levers that affect both revenues and spending -- would offer a better chance to enact reforms with a positive fiscal outcome.

Achieving the health care savings in the budget is likely to be hamstrung by political rhetoric.

“The Medicare savings included in Ryan’s budget -- such as those from the current-law reductions in Medicare Advantage plans and the shift to a Medicare premium support system -- are valid and achievable,” said Joshua Gordon, Concord’s policy director. “However, fully realizing them will require a break from the current rhetorical stance of many in both parties against the Medicare Advantage financing trajectory and the narrow provider networks and private insurance regulations in the ACA insurance exchanges, without which budgetary savings from premium support would be unlikely.”

Ryan suggests allowing defense to exceed current spending caps. Non-defense discretionary spending, however, would fall to an unrealistic 2.2 percent of GDP by 2024, compared to an average of 3.8 percent over the past 40 years.

Concord also questioned other features of the budget. For example, while criticizing Obama for abandoning a proposal to switch to a more accurate measure of inflation, Ryan failed to include that idea in his own budget.

His plan supports base-broadening tax reform and a two-rate structure of 25 and 10 percent but does not embrace any particular proposal for making these reforms revenue-neutral.

A small but growing portion of the assumed savings in Ryan’s budget comes from estimates of its macroeconomic feedback, which introduces additional uncertainty into the projections.

 

Permanent Fix on Medicare Payments Remains Elusive

The President signed a measure yesterday that postpones sharp cuts in Medicare payments to health care providers for another year. This represented an unfortunate end, for now, to the bipartisan effort to find a permanent replacement for Medicare’s Sustainable Growth Rate (SGR) formula.

Without congressional action, payments to physicians were scheduled for a 24 percent cut.

House leaders sent the measure to the Senate after a surprise “voice vote” last week that tricked some opponents of the bill and enabled other lawmakers to pretend they opposed it. The Senate approved the legislation Monday on a 64-35 vote.

Lawmakers’ failure to find a permanent solution came despite widespread recognition among Republicans and Democrats alike that a better payment system -- based on quality rather than quantity of care -- could help reduce federal deficits and curb the growth in medical costs.

On the positive side, some of the offsets for the short-term fix represented real attempts to sensibly reform health care spending. Yet those efforts were marred by an offset gimmick in which already scheduled savings were accelerated so they can be counted within the traditional 10-year “budget window.”

Budget Experts Call for Balanced Deficit Reduction

In a congressional hearing last week, several budget experts urged lawmakers to address the unsustainable growth in the federal debt through balanced deficit-reduction measures.

The experts told the House Financial Services Committee that rising medical costs and the needs of an aging population would put heavy pressure on the budget in coming years.

Douglas Holtz-Eakin, president of the American Action Forum, pointed out that policymakers have done little to change the spending trajectory of the health care and retirement programs that are key drivers of projected federal deficits. 

Alice Rivlin, a senior fellow at Brookings, lamented the “polarized politics that prevents our coming to grips with serious long-run problems.” She urged elected officials to aim for a “grand bargain” that would reform entitlement programs, limit discretionary spending and raises revenue through tax reform.

Jared Bernstein, senior fellow at the Center on Budget and Policy Priorities, agreed that budget pressures require changes to spending programs as well as revenues.

Honeywell CEO David Cote warned that heavy federal debt burdens “could hike up interest rates and inflation rates, and it very well could slow our entire economy.”

Maryland, Massachusetts Try to Rein In Health Costs

Officials in Maryland and Massachusetts are pursuing ambitious reforms to limit health spending to their states’ economic growth rates. These reforms could provide useful lessons for the rest of the country.

In Maryland, state hospitals and insurers have agreed to enter into new payment arrangements that over the next five years will limit the growth in hospital spending to 3.58 percent a year. That is the state’s average annual rate of per capita economic growth since 2002.

In Massachusetts, a 2012 law aims to limit the growth in state health expenditures over the next 10 years to the state’s economic growth rate. A 2006 Massachusetts law served as a model for the federal Affordable Care Act; the new state legislation creates a commission to work with payers and providers to help keep health spending on track.

These reforms could save both states significant amounts of money in coming years. If successful, they could also help guide officials in other states and Washington as they continue working on their own cost-containment initiatives.