Three Reasons to Oppose the Swampy Budget Deal

On Monday, congressional leaders and the Trump administration announced agreement on legislation that would set budget and spending parameters for the next two years. The agreement would suspend the debt limit through July 2021, and establish spending levels for lawmakers to enact appropriations measures for the remainder of this Congress.

Conservatives have rightly criticized the agreement as abandoning the principles of smaller government, with a return to the trillion-dollar deficits seen under Barack Obama (and this time under a more robust economy). Among the many reasons to oppose the agreement, three in particular stand out.

1. More Spending Now

When the Budget Control Act, which established the existing spending caps, passed in the summer of 2011, Sen. Mitch McConnell (R-KY)—then the minority leader, now the majority leader—famously said it would slow down the “big government freight train.”

But in the time since that bill’s enactment, McConnell and his colleagues in Congress have repeatedly increased the Budget Control Act’s spending caps, speeding up the big government freight train over and over again.

2. More Spending Later

On one level, the agreement at least wins points for honesty, by abandoning the pretense that Congress has any interest in controlling spending. However, future generations will wish that Congress had substituted some actual fiscal discipline for profligacy.

3. No Policy Improvements

To assuage the conservative concerns about the package’s spending binge, Republican leaders have pointed to other language in the agreement. Specifically, the text states that Republican leaders and the White House would have a veto on any appropriations riders passed by the Democratic House that would seek to (for instance) defund regulatory actions by the current administration:

Congressional leaders and the Administration agree that, relative to the [Fiscal Year] 2019 regular appropriations acts, there will be no poison pills, additional new riders…other changes in policy or conventions…or any non-appropriations measures unless agreed to on a bipartisan basis by the four leaders with the approval of the President.

In theory, this language blocks Democrats from eliminating restrictions on taxpayer funding of abortion, among other liberal priorities.

If Democrats could block Republicans from enacting appropriations policy riders over the past two years, despite serving in the minority, could Republicans have blocked Democrats from enacting their own policy riders with continued control of the Senate and White House? That question should answer itself—provided Republicans had any spine (admittedly an uncertain prospect).

Instead, Republicans agreed to hundreds of billions of dollars in additional spending to “win” something they already had—an understanding that neither side would enact appropriations policy riders. Taken from the most cynical perspective, the agreement uses the pro-life community’s worries about Democratic riders—riders which both the White House and Republican Senate already had the means to stop—to rationalize congressional Republicans’ continued spending binge.

Trump came into office pledging to “drain the swamp.” But the new government spending contemplated by this agreement wouldn’t drain the swamp so much as grow it. Conservatives, and the American people as a whole, deserve better.

This post was originally published at The Federalist.

A Status Update on Repeal

With Congress heading towards its first recess at week’s end, it’s time to summarize where things stand on one of Republicans’ top objectives—repealing Obamacare—and might be headed next. While those who want further details should read the entire article, the lengthy analysis below makes three main points:

  1. Congress faces far too many logistical obstacles—the mechanics of drafting bill text, procedural challenges in the Senate, budgetary scoring concerns, and political and policy disagreements—to pass a comprehensive “repeal-and-replace” bill by late March, or indeed any time before summer;
  2. Congressional leaders and President Trump face numerous pressures—both to enact other key items on their agenda, and from conservatives anxious to repeal Obamacare immediately, if not sooner—that will prevent them from spending the entire spring and summer focused primarily on Obamacare; therefore
  3. Congressional leaders will need to pare back their aspirations for a comprehensive “repeal-and-replace” bill, slim down the legislation to include repeal and any pieces of “replace” that can pass easily and swiftly with broad Republican support, and work to enact other elements of their “replace” agenda in subsequent legislation.

What Has Happened In the Last Month

Before the New Year, congressional leaders had endorsed a strategy of repealing Obamacare via special budget reconciliation procedures, using legislation that passed Congress (but President Obama vetoed) in late 2015 and early 2016 as a model. Subsequent efforts would focus on crafting an alternative to the law, whose entitlements would sunset in two or three years, to allow adequate time for a transition.

Due to Trump’s intervention and angst amongst some Republicans toward moving forward with a repeal-first approach, congressional leaders pivoted. Various press reports in the last week suggest House committees are drafting a robust “replace” package that will accompany repeal legislation. This “repeal-and-replace” bill will use the special reconciliation procedures that allow budget-related provisions to pass with a 51-vote majority (instead of the usual 60 votes needed to break a filibuster) in the Senate, with non-budgetary provisions being considered in subsequent pieces of legislation.

The press reports and strategic leaks from House offices attempt to show progress towards a quick markup—a March 1 markup date was floated in one article—and enactment before Congress next recesses, in late March. But these optimistic stories cannot hide two fundamental truths: 1) Enacting comprehensive “replace” legislation along with repeal will take far longer than anyone in Congress has yet admitted; and 2) Leadership does not have the time—due both to other must-pass legislation, and political pressure from the Right to pass repeal quickly—necessary to fashion a comprehensive “repeal-and-replace” bill.

He may not realize it at present, but in going down the simultaneous “repeal-and-replace” pathway, President Trump made a yuuuuge bet: holding the rest of legislative agenda captive to the rapid enactment of such legislation. Once it becomes more obvious that “repeal-and-replace” will not happen on its current timetable—and that other key elements of the Republican agenda are in jeopardy as a result—it seems likely that Speaker Ryan, President Trump, or both will scale back the “replace” elements of the “repeal-and-replace” bill, to allow it to pass more quickly and easily.

Adding Layers of Complexity

But every element added to a piece of legislation makes it that much more complex. Republicans have an easy template to use for repealing Obamacare: the reconciliation bill that already passed Congress. That bill has been drafted, passed procedural muster in the Senate, and received both a favorable budgetary score and enough votes for enactment.

Conversely, crafting “replace” policies will require more time, conversations with legislative counsel (the office in Congress that actually drafts legislation), discussions about policy options for implementation, and so forth.

House Republicans did engage in some of these conversations when compiling their Better Way agenda last spring. But that plan ultimately did not get translated into legislative language, and the plan itself left important details out (in some cases deliberately).

It seems plausible that House Republicans could fairly easily incorporate some elements of their “replace” agenda—for instance, HSA incentives or funding for high-risk pools—into a repeal reconciliation bill. There are several “off-the-shelf” (i.e., previously drafted) versions of these policy options, and the budgetary effects of these changes are relatively straight-forward (i.e., few interactions with other policy elements).

But on tax credits and Medicaid reform, House Republicans face another major logistical obstacle: Analysis by the Congressional Budget Office (CBO). Longtime observers and congressional historians may recall that CBO was where Hillarycare went to die back in 1994. While Republicans are not necessarily doomed to face a similar fate two decades later, the idea that budget analysts will give “repeal-and-replace” a clean bill of fiscal health within a fortnight—or even a month—defies both credulity and history.

Running the CBO Gauntlet

As someone who worked on Capitol Hill during the Obamacare debate eight years ago, I remember the effect when CBO released one of its first scores of Democrats’ legislation. As the New York Times reported on June 17, 2009, in a piece entitled “Senate Faces Major Setback on Health Care Bill”: “The Senate Finance Committee is delaying its first public drafting session on major health care legislation until after the July Fourth recess, a lengthy setback but one that even Democrats say is critically needed to let them work on reducing the costs of the bill…. The drafting session had been scheduled for Tuesday. But new cost estimates by the Congressional Budget Office on health care proposals came in much more expensive than expected, emboldening critics and alarming Democrats.”

Given the role CBO played in delivering Hillarycare a mortal blow in the 1990s, and the more than nine-month gap between the initial (horrible) CBO scores of Obamacare and that law’s enactment, House leadership’s implication that its “repeal-and-replace” legislation can move straight to passage by receiving a clean bill of health from CBO on the first go-round seems highly unrealistic.

Just like any player moving up from the minor leagues will need time to adjust to big-league pitching, so too will any legislation with as many moving parts as a comprehensive “repeal-and-replace” bill require several, and possibly significant, adjustments and tweaks to receive a CBO score Republicans find acceptable.

While House Republicans’ Better Way plan included a much less complicated and convoluted formula for providing insurance subsidies than Obamacare, they may face other difficulties in achieving a favorable CBO score, particularly regarding to the number of Americans covered under their refundable tax credit regime. These include the following.

No Mandate:  While conservatives view the lack of a requirement to purchase insurance as a feature of any Obamacare alternative, CBO has a long history of viewing a mandate’s absence as a bug—and will score legislation accordingly. In analyzing health reform issues in a December 2008 volume, CBO published an elasticity curve showing take-up of health insurance based on various levels of federal subsidies. The curve claimed that, even with a 100 percent subsidy—the federal government giving away health insurance for “free”—only about 80 percent of individuals will actually obtain coverage. In CBO’s mind, unless the government forces individuals to buy insurance, a significant percentage will not do so.

President Obama didn’t want to include a mandate in Obamacare, not least because he campaigned against it. But CBO essentially forced Democrats to include one to receive a favorable score on the number of Americans covered. If Republicans care about matching the number of individuals insured by Obamacare (some view it as more of a priority than others), the lack of a mandate will cost them on coverage numbers. Alternative mandate-like policies such as auto-enrollment may mitigate that gap, but CBO may not view them as favorably—and they come with their own detractors.

Age-Rated Subsidies: Obamacare uses income as a major factor in calculating its insurance subsidy amounts, which creates two problems. First, because subsidies decline as individuals’ income rises, Obamacare effectively discourages work. CBO has previously calculated that, largely because of these work disincentives, the law will reduce the labor supply by the equivalent of 2.5 million full-time jobs.

Second, the process of reconciling projected income to actual earnings creates administrative complexity. It poses large paperwork burdens on the Internal Revenue Service and taxpayers alike, and requires some individuals to forfeit their refunds and pay back subsidies at tax time.

House Republicans have proposed a simpler system of insurance subsidies, based solely upon age. However, because the subsidies are solely linked to age, low-income individuals receive the same subsidy as millionaires. While much more transparent and fair, this system also does not target resources to those who would need them most. To borrow an analogy, it spreads the peanut butter (i.e., insurance subsidies) more evenly, but also more thinly, over the proverbial piece of bread (i.e., Americans seeking insurance). Given CBO’s beliefs about the likelihood of individuals purchasing insurance outlined above, this change could also cost Republicans significantly in the coverage department.

Medicaid Reform: Republicans have consistently argued that providing states with additional flexibility to manage their Medicaid programs in exchange for a defined federal contribution will allow them to reduce program spending in beneficial ways. Rhode Island’s innovative global compact waiver provides an excellent example of providing better care within an overall budget on expenditures.

However, CBO analysts have publicly taken a different view. In analyzing per capita spending caps for Medicaid—the policy option House Republicans are reportedly incorporating into their alternative—last December, CBO wrote that “States would take a variety of actions to reduce a portion of the additional costs that they would face [from the caps], including restricting enrollment. For people who lose Medicaid coverage, CBO and the staff of the Joint Committee on Taxation estimate that roughly three-quarters would become uninsured.”

CBO has therefore made rather clear that it will score reforms to Medicaid as increasing the number of uninsured.

Speaker Ryan may have pushed for the comprehensive “repeal-and-replace” strategy in part to appease Republican members of Congress who want to see their alternative to Obamacare provide as many Americans with insurance as current law. But it seems highly improbable that CBO will score any Republican tax credit proposal as covering as many Americans as Obamacare. It is also not outside the realm of possibility for CBO to score an alternative as covering fewer Americans than the pre-Obamacare status quo.

The first two CBO scoring issues nixed any attempt by House Republicans to include tax credits as part of their alternative to Obamacare in 2009, when I worked in House leadership. Sources tell me unfavorable scores also nixed House Republicans’ attempt to include a refundable tax credit when the party was crafting responses to a potential Supreme Court ruling striking down the law’s subsidies in 2015. It therefore ranges from likely to certain that an initial CBO score of a comprehensive “repeal-and-replace” bill will go over about as well as it did for Republicans in 2009 and 2015—with generally poor coverage figures compared to Obamacare.

In theory, Republicans could work to surmount some of these obstacles and achieve more robust coverage figures. But such efforts would require time to sort through policy options—time that Republicans don’t currently have—and money to fund insurance subsidies, even though Republicans don’t have an obvious source of funding for them.

Pay-For Problems

Over and above the purely technical problems associated with scoring a “repeal-and-replace” bill, other issues present both policy and political concerns. To wit, if Republicans include refundable tax credits in their plan, how exactly will they finance this new spending? The possibilities range from unpalatable to implausible.

  • They could try to keep some of Obamacare’s tax increases to fund their own spending. But key Republican lawmakers and key constituency groups have strongly supported repealing all of Obamacare’s tax hikes. It seems unlikely that a bill that failed to repeal all of the law’s tax increases could gather enough votes for passage.
  • They could include their own revenue-raisers after repealing all of Obamacare’s tax hikes. For instance, House Republicans could limit the value of employer-provided health coverage. But while economists of all political stripes support such efforts as one key way to reduce health costs, members of the business community would likely oppose this measure, judging from recent news stories. Unions and the middle class likely wouldn’t be keen either. Moreover, by using limits on employer-provided health coverage as a new source of revenue rather than reforming the tax treatment of health insurance in a revenue-neutral way, Republicans would repeal Obamacare’s tax increases, but replace them with other tax increases—an unappetizing political slogan for the party to embrace.
  • They could use Medicaid reform to fund the credits, but that causes the potential problems with coverage numbers outlined above, and will likely generate additional squabbling among governors and states over the funding formula, as outlined in greater detail below.
  • They could use the remaining savings after repealing Obamacare’s tax increases and entitlements—which in the 2015/2016 reconciliation bill totaled $317.5 billion—to fund a new insurance subsidy regime. But such a move raises both policy and political problems. While Republicans could re-direct the $317.5 billion in savings during the first ten years to pay for insurance subsidies, the subsidies would likely have to expire after a decade. Creating a permanent new entitlement (the subsidies) funded by temporary savings would result in a point of order in the Senate—one that takes 60 votes, which Republicans do not have, to overcome—because budget reconciliation bills cannot increase the deficit in any year beyond the ten-year budget window. Thus any subsidies funded by the reconciliation bill’s savings would have to sunset by 2026—a far from ideal outcome. On the political side, the savings in last year’s reconciliation bill came from keeping Obamacare’s reductions in Medicare spending. If Republicans turn around and use that money to fund a new subsidy regime, they would be “raiding Medicare to fund a new entitlement”—the exact same charge Republicans used against Democrats to great effect during the debates over Obamacare.

To put it bluntly, while some Republicans may want to include refundable tax credits in their Obamacare alternative, they have no clear way—and certainly no pain-free way—to fund these credits. Even if they do push forward despite the clear obstacles, finding the right blend among the options listed above will require conversations among members and constituency groups, and multiple rounds of CBO scores for various policy options—all of which will take much more time than House leadership currently envisions.

Then There Are the Political Obstacles

Layered on top of the pay-for difficulties lie other political obstacles preventing quick enactment of a comprehensive “repeal-and-replace” package.

Medicaid: With 16 Republican governors ruling states that expanded Medicaid under Obamacare, and 17 Republican governors in states that did not, the fate of Medicaid expansion remains one of the thorniest questions surrounding repeal. Many states that did expand wish to keep their expansion, while states that did not do not want to be disadvantaged by making what they view as the conservative choice to turn down the new spending from Obamacare. Lawmakers have admitted they have yet to craft a solution on this issue. Attaching Medicaid reform to a “repeal-and-replace” measure will only complicate matters further, by giving states another issue (namely, the new funding formula for the per capita spending caps) to fight over.

House-Senate Differences: While House Republicans gear up to pass a comprehensive “repeal-and-replace” package, reports last week also indicated that Senate leadership still intends to consider legislation more closely resembling the 2015/2016 reconciliation bill. If Speaker Ryan continues to craft a “repeal-and-replace” bill while Majority Leader McConnell pushes “repeal-and-delay,” something will have to bring the two leaders to an agreement reconciling their disparate approaches.

Insurers: Those opposed to the “repeal-and-delay” strategy initially advocated by congressional leaders cited the needs of insurers as reason to pass a full “replacement” of Obamacare concurrent with repeal. Insurers will need to start submitting bids for the 2018 plan cycle by spring, and will want some certainty about how next year’s landscape will look before doing so. Hence the call for a full “repeal-and-replace,” to give insurers fast reassurances about the policy landscape going forward.

But if “full replace” will take until summer to pass—as it almost invariably will—then that argument gets turned on its head. In such circumstances, Congress should act swiftly to include some type of high-risk pool funding for those with pre-existing conditions, to prevent the insurer community from ending up with an influx of very sick, very costly enrollees.

Passing a repeal bill with high-risk pool funding may provide insurers with less certainty than a full “repeal-and-replace” measure, but it would yield infinitely more certainty than Congress arguing until September over the details of “full replace,” with the entire legal and regulatory realm in limbo as insurers must prepare for their 2018 plan offerings.

Conservatives: Some conservatives have philosophical objections to refundable tax credits, or indeed to any “replacement” legislation. Sen. Mike Lee this week called including “replacement” provisions on a repeal bill a “horrible idea.” Lee was one of three Republicans (the others being Ted Cruz and Marco Rubio) who in fall 2015 pushed for more robust repeal legislation, issuing a statement demanding that year’s reconciliation measure include the greatest amount of repeal provisions possible consistent with Senate rules. After the conservatives laid down their marker, the Senate ultimately passed, and the House ratified, the reconciliation measure repealing the law’s entitlements and all of Obamacare’s tax increases.

Some within the party have acknowledged the fractious nature of the “replace” discussions. Ramesh Ponnuru has publicly worried that some conservatives agnostic or skeptical on the merits of a “replace” plan would do nothing following repeal, and therefore wants to link repeal with replace, to force conservatives to vote for a vision of “replace.”

Such maneuvering pre-supposes that conservatives will swallow a “replace” plan they dislike to repeal Obamacare, a dicey proposition given conservatives’ success at obtaining a more robust repeal measure in 2015. It also pre-supposes that conservatives will stand idly by while leadership takes the months necessary to create full-scale “replace” legislation.

If the process continues to drag on in the House, it would not surprise me one bit were conservatives to introduce a discharge petition to force a House floor vote on the 2015/2016 reconciliation bill. Conservatives in the House Freedom Caucus and the Republican Study Committee, likely in conjunction with outside conservative groups, would turn the discharge petition into a litmus test for Republican members of Congress: Are you for repeal—and repeal in the form of legislation that virtually all returning Republicans voted for one short year ago—or not?

While a discharge petition needs 218 member signatures before its sponsor can force a floor vote, the mere introduction of a discharge petition would increase the pressure on House leadership to move quickly on repeal. Moreover, it would highlight the fact that neither Speaker Ryan nor President Trump can afford to spend the entire spring and summer slogging through a long legislative process regarding Obamacare.

Now We Come to the Opportunity Costs

Most of this year’s major action items require the Obamacare reconciliation bill to pass. Once and only once that legislation passes can Congress pass a second budget, allowing for a second budget reconciliation measure to move through the Senate. Specific items held in limbo due to the Obamacare debate include the following.

Tax Reform: Republicans want to use the second reconciliation bill to overhaul the tax code. (President Trump may also want to use the tax reform bill to finance his planned infrastructure package.) But because the current budget does not include reconciliation instructions regarding revenues, Congress must pass another budget with specific reconciliation instructions before tax reform can move through the Senate with a simple (51-vote) majority. But before Congress passes another budget, it must first pass the reconciliation bill (i.e., the Obamacare bill) related to this budget.

Debt Limit: The current suspension of the debt limit expires on March 15. While the Treasury can use extraordinary measures to stave off a debt default for several months, Congress will likely have to address the debt limit prior to its August recess. As with tax reform, the debt limit (and spending and entitlement reforms to accompany same) can be enacted with a simple majority in the Senate via budget reconciliation. But, as with tax reform, doing so first requires passing another budget, which requires enacting the Obamacare reconciliation bill.

Appropriations: The current stopgap spending agreement expires on April 28. Congress will need to pass another spending measure by then—quite possibly including a request by the president for additional border security funds—and begin considering spending bills for the new fiscal year that starts September 30. Here again, passage of these legislative provisions would be greatly aided by passage of another budget to set fiscal parameters, but that cannot happen until the Obamacare reconciliation bill is on the statute books.

As other observers have begun noting, many of the major “must-pass” and “want-to-pass” pieces of legislation—tax reform; Trump’s infrastructure package; a debt limit increase; appropriations legislation; funding for border security—remain essentially captive to the Obamacare “repeal-and-replace” process. The scene resembles the airspace over New York during rush hour, with planes circling overhead while one plane (the Obamacare bill) attempts to land. Unfortunately, the longer the planes circle, one or more of them will run out of fuel, effectively crashing major pieces of the Trump/Ryan agenda due to legislative inaction and neglect.

The Available Political Options

With a legislative process for “repeal-and-replace” likely to take months longer than currently advertised, and a series of other competing priorities contingent on it, Speaker Ryan and President Trump face three options.

Punt: Focus on passing the other agenda items first, and come back to Obamacare later;

Plow Ahead: Remain on the current course, knowing that Obamacare will jeopardize much of Trump’s and Ryan’s other agenda items; or

Pivot/Pare Back: Return to something approaching last year’s reconciliation bill, and postpone major “replace” legislation until a future reconciliation measure.

Given the current environment, the third option seems the clear “least bad” outcome. The first would represent a major political setback, effectively admitting defeat on the president’s top agenda item and betraying Republicans’ seven-year-long commitment to repeal that conservatives sharply opposed to Obamacare will never forget, and may never forgive. The second jeopardizes, if not completely sacrifices, most of the party’s legislative agenda, including items the president will want to tout in his re-election bid.

Therefore, it seems likely that Ryan, Trump, or both will eventually move to pare back the current comprehensive “repeal-and-replace” legislation towards something more closely resembling the 2015/2016 repeal reconciliation bill.

The legislation may include elements of “replace,” but only those with a clear fiscal nexus (due to the Senate’s rules regarding reconciliation) and broad support among Republicans. HSA incentives and funding for high-risk pools might qualify. But more robust provisions, such as Medicaid reforms or refundable tax credits, will likely get jettisoned for the time being, to help pass slimmed down legislation yet this spring.

Time’s a Wastin’

To sum up: The likelihood that House Republicans can get a comprehensive “repeal-and-replace” bill—defined as one with either tax credits, Medicaid reform, or both—1) drafted; 2) cleared by the Senate parliamentarian; 3) scored favorably by CBO; and 4) with enough member support to ensure it passes in time for a mark-up on March 1—two weeks from now—is a nice round number: Zero-point-zero percent.

Likewise the chances of enacting a comprehensive “repeal-and-replace” bill by Congress’ Easter recess. It just won’t happen. For a bill signing ceremony for a comprehensive “repeal-and-replace” bill, August recess seems a likelier, albeit still ambitious, target.

Republicans have already blown through two deadlines on “repeal-and-replace”: the January 27 deadline for committees to report reconciliation measures to the House and Senate Budget Committees, and the President’s Day recess, the original tentative deadline for getting repeal legislation to President Trump’s desk. Any further delays will accelerate both conservative angst and the same types of process stories from the media—“Republicans arguing amongst themselves on repealing Obamacare”—that plagued Democrats from the summer of 2009 through the law’s enactment.

Some may find this analysis harsh, or even impertinent. Some may want to take issue with my assumptions—Newt Gingrich would no doubt dispute CBO’s scoring methods, long and loudly. But policy-making involves crafting solutions given the way things are, not the way we wish them to be. And every day that goes by while Congress remains on the current “repeal-and-replace” pathway—which seems increasingly like a strategic box canyon—will only jeopardize the success of other critical policy priorities.

For all his wealth, Trump gets the same amount of one thing as everyone else: Time. For that reason, his administration and Speaker Ryan should re-assess their current strategy on Obamacare—the sooner the better. Time’s a wastin’, and the entire Republican agenda is at stake.

This post was originally published at The Federalist.

Obama’s Medicare Fantasies

Ahead of this evening’s first presidential debate, it’s worth examining what may happen on entitlement reform in a post-election environment.  Politico had a piece last Friday examining what the President isn’t saying about Medicare:

[During debt ceiling negotiations in mid-2011,] Obama and his top aides made clear that they were willing to swallow serious changes to Medicare in exchange for deficit reduction….Obama, in an interview with [Bob] Woodward, acknowledged he was open to nudging reluctant liberals on Medicare and Social Security if Republicans were willing to deal on taxes.  “’I am willing to move on entitlement reform — even if my own party is resisting, and I will bring them along — as long as we have significant revenues so that people feel like there’s a fairly shared burden when it comes to deficit reduction.’”

The Obama camp’s statements mislead on multiple fronts.  First, President Obama is currently claiming on the campaign trail that his proposals “will save Medicare money by getting rid of wasteful spending in the health care system.  Reforms that will not touch your Medicare benefits.”  What President Obama is claiming – before the election – is that he fully intends to break his own campaign promise “not [to] touch your Medicare benefits” after the election – so long as Republicans agree to break their own campaign pledge and raise taxes on the American people.  To say that is a cynical move – the antithesis of hope and change – is putting it mildly.

The second problem is that the President’s claim itself doesn’t withstand serious scrutiny, given his past track record.  Take, for instance, his pledge to Congress in September 2009 that his health plan would “cost around $900 billion over ten years.”  Here’s how that turned out:

  1. The final health care legislation as enacted spent $938 billion on insurance subsidies – more than the President’s $900 billion figure;
  2. The legislation also included a total of $144.2 billion in additional mandatory spending on programs other than insurance subsidies (e.g., closing the Medicare “doughnut hole,” prevention “slush fund,” etc.) – taking the measure’s mandatory spending to well above $1 trillion;
  3. The legislation included more than $100 billion in authorizations for domestic discretionary spending – figures revealed only after the legislation was signed into law; and
  4. Even the $1.2 trillion in combined mandatory and discretionary spending was an under-estimate of the law’s true 10-year fiscal impact, as the insurance expansions were delayed until 2014 in an attempt to make the bill seem less expensive than it really was.  The Congressional Budget Office concluded in July that the $938 billion in insurance subsidy spending has nearly doubled, to $1.68 trillion, now that more years of subsidy spending are present in the 10-year budget window.

So when all is said and done, and the gimmicks exposed, the plan President Obama claimed in 2009 would cost “only” $900 billion will in reality spend much more than that – a liberal, and recklessly irresponsible, record that would make many question Obama’s ability, and desire, to take on America’s unsustainable entitlements.

Even if the above fears are unfounded, and President Obama will finally put aside his liberal tendencies, the man who claims that “even if my own party is resisting” entitlement reform, “I will bring them along” appears to be vastly over-estimating his ability to influence the “professional left.”  According to Bob Woodward, Speaker Nancy Pelosi hit the mute button on President Obama during negotiations on the “stimulus” in 2009.  That might be a nice way to avoid listening to someone who has described himself as “long-winded” – but it doesn’t speak well to the President’s ability to influence his own party.

To sum up: President Obama wants Republicans to break their campaign promises after the election – which his advisers already claim he fully plans on doing himself – so that they can negotiate with someone whose health care bill cost twice what he promised, and whose own party’s leaders have tuned him out.  Somewhere, P.T. Barnum must be smiling.

What You Need to Know about Today’s Medicare Trustees Report Release

Later today the Medicare trustees will release their annual report on the state of the program’s finances.  The report is expected to show a slight improvement in Medicare’s solvency, due largely to the 2% Medicare provider cuts expected under sequestration beginning next year.  Three important points to bear in mind:

 

  • Republicans, NOT Democrats, were the ones who insisted on the spending reductions that led to today’s improvement in solvency projections.  Many believe the sequester is an imperfect mechanism for achieving spending reductions.  That said, if Congress had followed the Obama Administration’s initial guidance and rubber-stamped a $2 trillion-plus increase in the debt ceiling without any spending reductions, today’s report would have shown a worse financial predicament for Medicare.  Last year, Secretary Geithner and other Administration officials said it was “critical” and “imperative” that Congress raise the debt limit without being “held hostage” to spending reductions: “Our very strong view is that the debt limit should be passed as a clean, standalone bill.”  Yet today, Secretary Geithner and others within the Administration will try to spin how they are FOR today’s slight improvement in Medicare’s financial picture – without pointing out that they were AGAINST passing any spending reductions at all last year.  Some may find this flip-flop slightly hypocritical.
  • Conversely, in Obamacare Democrats chose to use Medicare savings NOT to reduce the deficit or improve Medicare’s solvency, but instead to create unsustainable new entitlementsSpeaker Pelosi said it best last year in an interview when she admitted that Democrats “took a half a trillion dollars out of Medicare in [Obamacare], the health care bill” to pay for more unsustainable new entitlements.  Even President Obama, in an interview with Fox News, admitted that “You can’t say that you are saving on Medicare and then spending the money twice.”
  • Today’s slight improvement in solvency notwithstanding, Medicare is on an unsustainable path, and needs fundamental reform NOW.  Some in the Administration and elsewhere may attempt to use the slight improvement in the program’s finances as an excuse to delay, or even eliminate, additional reforms to the program – which would be a grave mistake for America’s seniors.  The Congressional Budget Office’s March 2012 baseline shows Medicare will run budget deficits forever – this even after taking into account the impact of the 2% budget sequester.  That is not a record the trustees or Congress should attempt to trumpet – because what business would be proud of a balance sheet that shows cascading losses in perpetuity?  While Congress should be working NOW to reform the Medicare program, Senate Democrats are instead reaching the 1,100 day mark on their abdication of leadership, failing to pass a budget and take the tough choices needed to get our fiscal house in order.

 

 

We will of course have additional insights and analysis once the report is released later today.

Obamacare’s Effects: Rising Premiums, Fewer Jobs

A study of employers released by Mercer yesterday yielded interesting results about the health care law.  More than a quarter of employer respondents said their costs would rise by at least 3% in 2014 thanks to Obamacare’s new mandates and requirements – 15% said the increase would be more than 5%, and a further 13% said their costs would rise by about 3-4%.  And a further 29% haven’t yet calculated how much the law will increase their firms’ costs, meaning the numbers cited above likely will rise in future surveys.  That Obamacare will raise premium costs for businesses – even though candidate Obama repeatedly promised that premiums would go DOWN by an average $2,500 per family – shows once again how the law is not meeting its promises.

Worse yet, the Mercer survey also reveals one way in which the law will REDUCE jobs for the American economy, rather than creating the 4,000,000 jobs that then-Speaker Pelosi promised.  The survey found that more than a quarter of firm respondents (28%) currently cannot afford to provide coverage to some or all of their part-time workers who work more than 30 hours per week, as Obamacare requires.  And how do these affected firms plan to respond to Obamacare’s new mandate to provide insurance to all employees working more than 30 hours per week?  Half (50%) plan to “change their workforce strategy” so that fewer workers work more than the 30 hours per week that triggers the new Obamacare requirements.  That means fewer opportunities for individuals to work more hours they need to get ahead in this struggling economy.

One small business owner testified before Congress last week about the way in which Obamacare is distorting economic decision-making for businesses, discouraging them from hiring new workers and encouraging them to lay off existing ones:

Up until the passage of health reform, our plan had been that after October 2011 (this October), my wife and I would have entirely paid off the debt on our business for that purchase.  We have long anticipated and planned for the day when we could spend the money we were using to pay off this debt to expand our business and branch out further.  For my entire career, I have been working to become financially independent but now I face a very uncertain future.  I fear that everything I’ve worked for will be for naught.

The new health care law has wrecked our plans to grow our business and create jobs.  We are already taking steps to downsize our team in anticipation of the full weight of the law’s burden which will affect me most heavily in 2014.  My new focus, unfortunately, is on how to have the leanest workforce possible and, even more dismaying, my worries about the very survival of our business are emblematic of the reactions of millions of small businesses throughout our nation.  I cannot imagine that this is what the President and Congress intended, particularly as they continue to try to pull our country out of a recession and reduce the unemployment rate.  But intentions aside, it is the reality that they have created for us; it is the reality facing the very entrepreneurs that our nation needs to create the jobs to get our economy back on track.

Ironically enough, at his press conference regarding the debt ceiling yesterday President Obama asked “What are we going to do for the single mom who’s seen her hours cut back…?”  Based on the Mercer survey, and the testimony noted above, one of the best things we could do to get that single mom more hours would be to repeal Obamacare, and particularly its destructive mandates on business.

Budget Control Act and Medicare

As you have probably heard, the bipartisan Congressional leadership last night announced an agreement in principle on an increase in the federal debt ceiling.  Text of the agreement is available here.  In broad terms, the agreement provides for a $900 billion increase in the debt limit, paid for by newly established caps on discretionary spending over the next 10 years.  The second tranche of a debt limit increase would be conditioned on the recommendations of a Congressional Committee directed to achieve at least $1.2 trillion-$1.5 trillion in savings; the Committee would be directed to report by November 23, 2011, with its recommendations to be enacted by Congress (under special expedited procedures) by December 23, 2011.

If the Congressional Committee cannot reach agreement (or its recommendations are not enacted), then the second tranche of the debt limit increase will be paid for by corresponding cuts in spending (i.e., sequestration), including Medicare spendingSequestration will apply in equal amounts to defense and non-defense spending (which includes discretionary spending accounts, as well as Medicare).  The bill provides for a maximum 2 percent cut in Medicare spending, under procedures previously established under the Gramm-Rudman-Hollings Act (see subsection (d) here).  Note that the maximum 2 percent cut included in the bill would be a reduction from the 4 percent cut permitted under the original Gramm-Rudman-Hollings Act.

If the Congressional Committee results in enactment of a savings package, but the amount of savings totals less than the $1.2 trillion needed for a second tranche of a debt limit increase, then the reductions in spending required will be proportionately reduced for all programs subject to sequestration, including Medicare.  Grants to state Medicaid programs would be exempt from sequestration, as they are classified as a low-income program under the current law definition (statutory language available here).

Two additional provisions to note.  The first is that the Medicare statutory language on sequestration, specifically paragraph (5) of subsection d, expressly forbids any increase in beneficiary charges as a result of the sequestration process.  In other words, the cuts are in payments to Medicare providers only.  (As a reminder, Medicare physician payments are subject to a current-law reduction of about 30 percent under the Sustainable Growth Rate mechanism absent action by Congress prior to December 31, 2011.)

Secondly, the Budget Control Act provides that the President can put forward a $1.5 trillion debt limit increase (subject to a resolution of disapproval) if a Balanced Budget Amendment to the Constitution passes Congress, and is forwarded to the states.  While this provision would allow for a debt limit increase without enactment of the Congressional Committee’s recommendations, it would not affect provisions requiring sequestrations (i.e., cuts) to finance that debt limit increase.  In other words, the sequesters/cuts will go into effect absent enactment of the Congressional Committee recommendations, regardless of whether or not Congress clears a BBA.

These are the only provisions relating to health care included in the debt limit agreement (other than the indirect effects of caps on and sequesters of discretionary appropriations, of course).  We will have more updates on the legislation as they become available.

Do House Democrat Leaders Oppose Obamacare?

This morning’s CongressDaily features an article on the debt limit negotiations, and Democrats’ adamant insistence that any agreement include job-crushing taxes.  The article quoted House Democrat Caucus Chairman John Larson as saying that “the only way ‘conceivably to get Democratic support’ on Medicare cuts was to direct any savings back into the Medicare program, in addition to increasing government revenues.”

This comment was a curious statement to make, as non-partisan budget analysts and even President Obama himself have admitted that the health care law uses more than $500 billion in Medicare funds to pay for new entitlements:

  • Medicare actuary Foster has written that the Medicare provisions in Obamacare “cannot be simultaneously used to finance other Federal outlays (such as the coverage expansions under the PPACA) and to extend the [Medicare] trust fund, despite the appearance of this result from the respective accounting conventions.”
  • The Congressional Budget Office agreed with the Medicare actuary, writing that the Medicare provisions in Obamacare “would not enhance the ability of the government to pay for future Medicare benefits.”
  • President Obama in an interview with Fox News last year admitted that “You can’t say that you are saving on Medicare and then spending the money twice.”

Last year then-Speaker Pelosi famously said we had to pass the bill to find out what’s in it.  Some might suggest Democrats need to take her  advice, to rediscover how Obamacare uses more than half a trillion dollars in Medicare savings – not to improve Medicare’s fiscal situation, but to create new and unsustainable entitlements.

Democrats Leading from Behind on Entitlement Reform

“There’s no need to have a Democratic budget…It would be foolish for us to do a budget.”

Senate Majority Leader Harry Reid, May 20, 2011

“I am afraid that the Democrats will draw the conclusion…that we shouldn’t do anything [about Medicare]. I completely disagree with that….You cannot have health care devour the economy.”

President Bill Clinton, May 25, 2011

 

Amid the Obama Administration’s request for a debt limit increase that could exceed $2 trillion, it’s worth examining how desperately federal health care entitlements need comprehensive reform—reform that Democrats have failed to put forward:

  • Medicare will be insolvent in as little as nine years.
  • America’s unfunded liabilities grow by $2 trillion to $3 trillion every year we do not act.
  • States face combined budgetary shortfalls totaling $175 billion—yet Obamacare imposes new unfunded mandates on state Medicaid programs totaling at least $118 billion.
  • Medicare is projected to run a deficit of more than $39 billion this year—the largest deficit in its history and a shortfall larger than the massive budget deficit that required Greece to accept a European bailout.
  • Under current projections, Medicare’s budget will NEVER achieve balance.
  • Former Medicare public trustee Tom Saving noted that, in order to solve the program’s long-term funding shortfall without crowding out other federal spending priorities, Part B premiums—currently set at $115.40 per month for most beneficiaries—would need to rise to more than $3,000-$5,000 per month.

Our entitlements cannot survive on their current path; when will Democrats finally produce their plan to save Medicare?

Medicare IS the Default Crisis

The Hill reported on a press conference held by several Senate Democrats this morning encouraging the President NOT to address Medicare as part of an agreement to raise the debt ceiling.  Sen. Harkin said that “our message is simply: Take Medicare off the table.  Let’s solve the default crisis.”  Sen. Harkin went on to claim that “the health care reform law’s investments in preventive care…should be given a chance to work.”

There are several problems with these statements.  First, Medicare is ALREADY contributing to the debt and deficits.  According to the Medicare trustees report, the Medicare Hospital Insurance Trust Fund suffered its greatest deficit EVER this past year.  Over the four years of the Obama Administration, Medicare is projected to lose a whopping $104.5 billion – and the program is NEVER projected to return to balance.  All those losses are forcing Medicare to sell the paper IOUs in its trust fund, which are the only things keeping the program afloat.  In short, Medicare’s deficits are forcing the Treasury to incur more debt – meaning Medicare is one of the prime reasons we face a debt crisis in the first place.

Furthermore, the idea that Obamacare’s $15 billion “slush fund” for things like jungle gyms and bike paths will reduce health care spending follows the Biden-esque logic that we’ve got to spend money to keep from going bankrupt.  However, the Congressional Budget Office and others have repudiated the notion that preventive care efforts – including new federal “stimulus” spending on these types of questionable projects – can materially reduce health care spending or federal deficits.

With the program NEVER scheduled to return to balance, Medicare is one of the key drivers of federal debt and deficits.  It’s a logical place to start the conversation about reforming entitlements in conjunction with a debt limit increase.  But eliminating Obamacare’s $15 billion prevention “slush fund” wouldn’t be a bad way to reduce federal spending either.

The Facts on Medicare and Entitlement Reform

The President spent time at his town hall meeting talking about how costs will be higher for future Medicare beneficiaries under the House Republican budget proposal, alleging that a comparison of expected health costs for seniors in 2022 and 2030 by the Congressional Budget Office demonstrates that Medicare beneficiaries will pay much more out-of-pocket under the Ryan plan than under current law.

There is however one minor detail that the President conveniently failed to mention: According to the Congressional Budget Office’s March 2011 baseline, by 2020 the Medicare Hospital Insurance Trust Fund will be insolvent – meaning the government will be financially able to pay MUCH less of seniors’ health costs in 2022 than the CBO analysis indicates.  (Note also that Medicare Part A has been running cash-flow deficits since at least last year.)  In order to remain financially solvent through 2022 (let alone 2030), the Medicare program will need a massive tax increase (over and above the more than half a trillion dollars in tax increases included in Obamacare), benefit reductions for seniors, or some combination thereof.

Our nation faces an imminent entitlement crisis, with Medicare already running deficits in the tens of billions of dollars.  Failing to take steps NOW to address these shortfalls – by delaying deficit reduction until after the President’s re-election campaign – will only heighten the fiscal crisis, as Standard and Poor’s concluded yesterday.  (On a related note, some may be asking to themselves:  If the President’s Independent Payment Advisory Board will have such a salutary effect on Medicare without harming seniors, why does the President want to wait until AFTER his re-election campaign to put these IPAB reductions into effect?)