Alan Simpson


The Roadmap Lives

Last year, Rep. Paul Ryan's "Roadmap" -- his far-reaching plan to restore long-term budget balance through tax and entitlement reform — was the subject of relentless attacks by those favoring a larger government role in American life. New York Times columnist Paul Krugman called Ryan the "Flimflam Man" in a widely cited opinion piece in which he tried to dismiss the Roadmap as not a credible solution to the nation's budget problems. The congressional Democratic leadership followed up with an organized campaign aimed at demonizing the plan as a callous assault on Social Security and Medicare beneficiaries. Their clear intention was to use the Roadmap to damage scores of Republican candidates for House and Senate seats by association.

None of it worked. In fact, not only did the Roadmap survive the 2010 mid-term campaign, the election results — and the dominoes that have fallen since — have made it far safer politically for Roadmap proponents to advance the plan's ideas in the public square.

That the political and policy landscape has started to shift, and rather dramatically, became apparent just a week after the election when the co-chairs of a commission appointed by President Obama, on which Ryan, a Republican from Wisconsin, also serves, offered draft recommendations on how to close the short- and long-term budget deficits. President Obama had appointed former Clinton White House chief of staff Erskine Bowles and former Senator Alan Simpson (R.-Wyoming), to chair the eighteen-member group earlier this year, and he asked them to report back by December 1 — after voters were given a chance to decide the make-up of the 112th Congress.

The draft proposal put forward by Bowles and Simpson caught just about everyone in Washington off guard. It's not a business-as-usual plan. Very few sacred cows were spared. It calls for radical tax reform to lower rates and broaden the base, a reduction in the corporate tax rate, long-term entitlement spending cuts, and elimination of programs that have been around for decades. Among the most controversial items now on the table for consideration by the presidentially appointed commission is the full elimination of mortgage interest and state and local tax deductions, dramatically lower future Social Security benefits for higher-wage workers, and real cuts in pay for federal workers.

On November 17, just a week later, another bipartisan commission looking at the nation's deteriorating budget situation took its turn. This one is headed by former Senator Pete Domenici (R.-New Mexico), and former Clinton budget director Alice Rivlin, and is sponsored by the Bipartisan Policy Center. They and their commission colleagues — many of whom are Democrats — released their own version of a deficit- reduction plan, which received unanimous support from the 19 commission members.

Among other recommendations, the Domenici-Rivlin plan would cap the tax preference for employer-paid health insurance and then phase it out entirely over a number of years. It would also convert the Medicare program for future enrollees into a "premium support" program in which the beneficiaries get a fixed level of financial support from the government for the purchase of insurance. Enrollees selecting options more expensive than the average plan would have to pay the difference out of their own pockets.

Rivlin — who is also serving on the Bowles-Simpson presidential commission — followed up her work with Senator Domenici by announcing her public support for a "Ryan-Rivlin" health entitlement reform program, which the two then proceeded to offer to the presidential commission for its consideration. The Ryan-Rivlin proposal includes many of the same features in the health sector as the Ryan Roadmap. Future Medicare enrollees would receive their entitlement in the form of a fixed level of federal support for health insurance. The eligibility age would be increased gradually to age 67, up from 65 today. And the cost-sharing for current program enrollees would be modified to require most beneficiaries to pay something toward the cost of the services they receive before Medicare and secondary insurance kicked in. Medicaid would be converted into a block grant program to the states, with the states freed up to run the program as they see fit. The new long-term care program created in the health law — called the "CLASS Act" — would be repealed. And noneconomic and punitive damages in medical malpractice cases would be capped.

The Congressional Budget Office, in a preliminary analysis, estimates the Ryan-Rivlin plan would reduce the federal budget deficit by $280 billion over the next decade and 1.75 percent of GDP in 2030 (with reasonable baseline assumptions). That kind of savings is going to be needed to prevent the federal budget from going entirely off the rails in the next two decades.

Still, there's no expectation that any of these proposals are going to sail through Congress anytime soon. Indeed, what's most likely to happen in the short term is absolutely nothing. The Bowles-Simpson commission may not find common ground, at which point Congress is under no obligation to take up draft recommendations from a subset of its membership. Moreover, both the Domenici-Rivlin plan and the Ryan-Rivlin health entitlement program have already set in motion frantic efforts to mount counter-offensives among the protectors of the status quo to prevent these ideas from gaining any political traction.

But what's really important about the last month is not that any reform plan is about to pass. It's that the terms of the budget, entitlement and health care debates have shifted dramatically, and very likely on a permanent basis. The fundamental elements of the Ryan Roadmap are sweeping tax reform; changes in health care which emphasize a marketplace and consumer choice; and modifications to retirement programs that reflect demographic reality. All of these elements can now be found in budget plans endorsed by prominent Democrats, including Democrats the president himself turned to find solutions to the nation’s budget problems. Consequently, it will be much harder in the future for Democrats to demonize these ideas as they have tried to do in the past.

Paul Ryan took the courageous step of going first with a bold plan to fundamentally restructure the tax and entitlement policies that threaten to push the federal budget past the breaking point. Now others, even some from the other side of the aisle, are joining him in sponsoring similar plans. The Roadmap does indeed live on.

[Cross-posted at Kaiser Health News]

posted by James C. Capretta | 5:04 pm
Tags: Paul Ryan, Alice Rivlin, Pete Domenici, Alan Simpson, Erskine Bowles, fiscal commission
File As: Health Care

The Debt Commission and Obamacare

The president’s debt commission had its first meeting this week, and all of the talk was of getting serious about putting our fiscal house in order, with everything “on the table” for consideration.

There’s no arguing with the need to get serious. According to the Congressional Budget Office (CBO), if the Obama budget were adopted in full, just the interest on the national debt would exceed $900 billion in 2020 and consume one out of every five dollars in federal revenue. To put that in perspective, in 2007, before the financial crisis hit with full force, interest payments on debt stood at $237 billion, or just 9 percent of total tax collections. A sudden and steep rise in the percentage of governmental revenue dedicated to servicing past excess consumption is a clear warning sign to lenders and credit-rating agencies that a country’s finances are approaching the point of no return.

Unfortunately, the timeline for taking corrective action may have shortened even in the past few weeks and days. What began as a slow-motion crumble of Greece’s economic house of cards is now threatening to become a serious global crisis. The flight from sovereign debt risk is now spreading to other vulnerable, highly leveraged countries, including Portugal, Ireland, and Spain. The implications for European economic recovery are ominous. And, if Europe’s economy slides backward again into a deep recession, no part of the global economy will be completely spared from the fallout, including the United States.

So we are long past the point when national leaders should have been sitting down together to hammer out a budget framework to avert the crisis everyone could long see coming. Indeed, one might have thought it would be the first order of business for a newly elected president of the United States.

But it wasn’t. Instead, President Barack Obama decided to spend 2009 using unusually large Democratic majorities in the House and Senate to jam a partisan and highly polarizing health care bill through the Congress. No Republican supported the measure, in large part because it vastly expanded federal entitlement commitments at the very moment when it was abundantly clear that the existing entitlements are the problem.

With the health legislation signed into law over the objections of a united Republican party, the president now wants Republicans to help him finance the newly enlarged welfare state.

Of course, the commission itself is a transparent maneuver to pass the buck in an election year. Voters are beyond fed up with the massive spending spree taking place in Washington. To every hostile question Democratic candidates will get in coming months about the exploding national debt, they are therefore planning the following answer: we’re waiting for the commission to make its recommendations in December. Never mind that Democrats control the White House and Congress. If they wanted to cut the budget, they could certainly do so, starting right now. Instead, they will try to use the appointment of a non-binding commission to create the appearance of a proactive agenda.

For the commission itself, the elephant in the room is Obamacare. Former Senator Alan Simpson, the co-chair of the commission, says the president has agreed that even the health law is “on the table” for discussion.

That’s good, if he means it. Because it is not possible to write a durable, bipartisan budget framework with health spending written entirely according to one party’s formulation.

Health care remains the largest problem in the nation’s long-term budget outlook, even after enactment of the health bill. On paper, the bill makes massive cuts in Medicare. But all of the supposed savings would go toward standing up a new entitlement that costs even more than the savings. So, health entitlement spending expands under the legislation, not contracts.

Moreover, the Medicare savings are from arbitrary payment-rate reductions. OMB Director Peter Orszag continues to argue the health law lays the predicate for cost-control through painless efficiency improvement in the delivery of medical services. But that’s either a smokescreen or the most alarming kind of wishful thinking. The “delivery system reforms” in the legislation are at best small pilot projects that will amount to very little. Certainly CBO assumed no savings from them. Neither did the chief actuary of the Medicare program.

The real cuts in Medicare come from reductions in payment rates. The cuts apply to all providers, across-the-board. There’s no attempt to calibrate based on the quality of the patient care or performance. If the debt commission takes Obamacare as a given when looking for additional savings in health care, it will inevitably fall into the same trap. To find quick and “scoreable” savings (that is, savings that CBO will recognize), the easiest thing to do is to further ratchet down payment rates and pretend the cuts will solve the budget problem. Going down that road would be a disaster for the quality of American medicine and would not provide a lasting solution.

What’s needed in American health care is a dynamic marketplace that drives up the productivity of those delivering medical services. That’s the only way to cut costs without harming quality. That’s genuine delivery system reform. Building such a marketplace requires, first and foremost, cost-conscious consumers, which in turn requires fundamental reform of the health entitlement programs and the tax treatment of health insurance. Fortunately, Congressman Paul Ryan’s roadmap has already shown us the way.

Like it or not, the budget debate remains in large part a health-care debate. Obamacare settled nothing because it did not solve the health care cost problem. It papered it over with price controls.

posted by James C. Capretta | 5:20 pm
Tags: debt commission, debt, Alan Simpson, Greece, Peter Orszag, CBO, payment-rate reductions
File As: Health Care