entitlements
Entitlements, the Budget, and the State of the Union
In a new post over on NRO's Corner tonight, I comment on the health care and budgetary aspects of President Obama's State of the Union address:
On health care, he offered nothing new. He is sticking with the plan the public has quite plainly rejected. According to a recent CNN poll, a full 70 percent of Americans want Congress either to start over entirely or to drop the subject altogether. That’s because they recognize that the plan the president has been pushing so aggressively for the better part of a year would be a disaster, for the quality of American medicine and for the nation’s budget outlook. The president claims the bill would cut the deficit, but that’s based on completely implausible assumptions. The bill would stand up another runaway entitlement program, paid for with offsets that will never hold up over time and cost-control ideas that are weak and largely meaningless.
Yesterday, I had another post on the Corner, remarking on the administration's proposed budget "freeze." An excerpt:
In reality, the Obama freeze is a purposeful diversion and sideshow. The nation is rushing headlong toward a fiscal crisis because of runaway government spending, and the Obama administration has no serious plan to head it off. Between 1789 and 2008, the federal government ran up $5.8 trillion in debt. In just the first three years of the Obama administration, CBO expects the debt to increase by nearly another $4 trillion. In 2010, CBO projects total federal spending will exceed $3.5 trillion, more than $500 billion over what was spent in 2008. Further, in 2012 and beyond, with realistic assumptions regarding extension of the Bush tax cuts, relief from the Alternative Minimum Tax, funding for the wars in Iraq and Afghanistan, and restoration of planned cuts in Medicare physician fees, the government is headed toward $1 trillion budget deficits every year for as far as the eye can see.
This massive run-up in debt is set to occur just as the baby boomers head into their retirement years, pushing up costs in Social Security, Medicare, and Medicaid. Between 2010 and 2030, the population that is age 65 and older will rise from about 41 million to 71 million. CBO expects spending on the big three entitlement programs to rise from 9.8 percent of GDP in 2010 to 14.4 percent in 2030 — an increase of about 4.6 percent of GDP in 20 years. That’s like adding another Social Security program to the federal budget with no plan to pay for it.
So far, the president’s primary response to this looming budget and entitlement crisis is to propose to pile another runaway health-care entitlement program on top of the unaffordable ones already on the books. According to CBO, the federal cost of the health-care commitments in both the House- and Senate-passed health-care bills would reach $200 billion in 2019 and would increase about 8 percent every year thereafter. Meanwhile, the offsets to pay for this new spending are completely unrealistic, and the so-called “bend the curve” provisions are far too weak to make a difference.
posted by James C. Capretta | 11:35 pm
Tags: budget, entitlements, President Obama
File As: Health Care
Health Care and the Deficit
The House Budget Committee held a hearing yesterday on "Perspectives on Long-Term Deficits." I was invited to testify. Here is how I concluded my written testimony:
The nation’s long-term budget outlook is bleak in large part because our healthcare entitlement commitments far exceed the revenues available to pay for them. By 2019, the House and Senate-passed health-care bills would add at least another $200 billion per year to those commitments, and unleash pressures for even more spending down the road. Meanwhile, the offsets used to pay this spending would be much less likely to occur, and the cost control provisions are not nearly robust enough to make a difference.
Congress would be well-advised to take a step back and rethink this entire approach. Instead of passing an expensive health-care bill that uses $1 trillion in offsets to pay for more spending, it would be better to craft a sensible, consensus long-term budget plan which has as one of its core elements an affordable, bipartisan health-care program, one that truly does the job on costs and expands coverage as well.
Here's a video of the hearing (my testimony begins at 33:22):
posted by James C. Capretta | 5:27 pm
Tags: deficit, debt, entitlements, Obamacare
File As: Health Care
An Entitlement Certain to Grow In Spite Of ‘Firewalls’
From a new piece I have over at Kaiser Health News:
But even if all of the offsets work out as planned, which is not likely, the House and Senate bills would still create substantial budgetary risks because of the pressures for entitlement expansion they would unleash.
Both bills assume the new entitlement spending can be held down with the so-called “firewall” provisions. These are the rules that essentially preclude individuals from gaining access to premium subsidies available in the exchanges. If an employer offers "qualified" insurance coverage to a worker, the employee really has no choice but to take it if he wants to avoid paying the penalty for going uninsured. But these rules would create large disparities in the federal subsidies made available to workers inside and outside the exchanges.
Gene Steuerle of the Urban Institute has calculated that, under the Senate bill, a family of four with an income of $60,000 with employer-sponsored health care would get $4,500 less in federal support outside of the exchange than a similar family inside the exchange would get in 2016. And there would be many tens of millions more families outside the exchange than in it, according to CBO. Today, there are about 127 million Americans under the age of 65 with incomes between 100 and 400 percent of the federal poverty line, but CBO expects only about 18 million people will be getting exchange subsidies in 2016.
If enacted as currently written, it’s entirely predictable what would happen next. Pressure would build to treat all Americans fairly, regardless of where they get their insurance. One way or another, the subsidies provided to those in the exchanges would be made more widely available, driving the costs of reform well above the $900 billion limit the administration has set for the initiative.
You can read the whole thing here.
posted by James C. Capretta | 10:55 am
Tags: entitlements, firewall, spending
File As: Health Care
Gas on the Entitlement Fire
President Obama has argued all year that a primary reason to enact a version of his health-care plan is to “bend the cost-curve” that has been burdening government and household budgets for years. Of course, the president has not shown that he has a credible plan to address rising health-care costs. But that hasn’t stopped him or his aides from talking as if they did.
Robert Samuelson has been a skeptic of Obamacare’s supposed cost-control potential from the beginning, but his column in today’s Washington Post summarizes his case with particularly effective force. It doesn’t hurt that all the evidence is on Samuelson’s side in this debate.
Samuelson’s critique is particularly important because the nation’s long-term prosperity is already threatened by rising entitlement costs. For starters, we are on the cusp of an unprecedented demographic shift. Over the course of the next quarter century, the population age 65 and older will increase from 39 million to 76 million people. This flood of new enrollees in Social Security and Medicare will push the costs of these programs up very dramatically. And runaway per capita health-care costs will exacerbate the problem substantially. According to the Congressional Budget Office (CBO), between 1975 and 2007, per capita Medicare spending rose, on average, 2.3 percentage points faster than per capita GDP growth. Medicaid’s per capita spending growth rate was not far behind. CBO expects both programs to continue growing at an accelerated pace for the foreseeable future. With an aging population and rising health costs, the long-term budget outlook is already challenging, to put it mildly. CBO projects that federal spending on Social Security, Medicare and Medicaid will rise from 10.1 percent of GDP in 2009 to 15.7 percent in 2035. That jump — 5.6 percent of GDP in twenty-five years — would be equivalent to adding another Social Security program or Defense Department to the federal budget without any additional revenue to pay for it.
And so, faced with a mountain of unfunded entitlement obligations, what would Obamacare do? Pile on more. According to the Census Bureau, in 2008, there were 127 million Americans under the age of 65 living in households with incomes between 100 and 400 percent of the federal poverty line. The House and Senate health-care bills would essentially promise all of them either free insurance through Medicaid or caps on their insurance premiums based on their incomes. This would constitute the single largest entitlement spending expansion since the Great Society programs of the 1960s. CBO expects the federal spending associated with these new open-ended health entitlement commitments to reach about $200 billion annually by 2019 and escalate at about 8 percent annually thereafter.
Meanwhile, the measures being touted as potential health-care cost-control steps are, by and large, nothing more than minor adjustments to existing provider payment arrangements in Medicare, and sometimes only tests of new payment approaches. For instance, the administration has been pushing a provision that would limit payments to hospitals that have high rates of preventable readmissions. The House-passed bill includes this change, but at a savings of only $1.6 billion in 2019. And even this level of savings is highly questionable, given the tendency of Congress to water down “payment reforms” over time. Indeed, it’s easy to imagine Congress rolling this payment change back at the first word that some hospitals are keeping the sickest patients out of their beds to avoid risking readmission payment “adjustments.” But even if it and other tweaks in the bills survive, they wouldn’t amount to much and certainly wouldn’t offset the cost pressures unleashed by extending new entitlement promises to a vast portion of America’s middle class.
And that’s not just the conclusion of critics like Samuelson. That’s also what the Chief Actuary for the Centers for Medicare and Medicaid Services (CMS) found in his review of the House-passed bill, released on Friday. As he put it, the provisions aimed at slowing the pace of rising costs would, by and large, have a “relatively small savings impact.” Consequently, instead of “bending the curve,” overall national health expenditures would rise by nearly $300 billion over a decade.
The only cost-cutting items in the House bill that the Chief Actuary said would really pinch costs are the across-the-board Medicare payment rate cuts applied to hospitals, nursing homes, and others. Of course, these kinds of arbitrary payment changes have been tried many times before and have never worked to really ease cost pressures. But, on paper at least, they appear to reduce federal spending. However, the Chief Actuary made it clear in his review that even though he listed the savings on his tables, he doesn’t think things will work out that way in the real world. As he put it, the cuts would push payment rates so low over time that some institutions wouldn’t be able to survive if they continued to serve Medicare patients. The threat of reduced access to care would be reason enough for Congress to reverse course and increase the payment rates at a later date. (Of course, that’s exactly what Congress is planning to do this year with physician fees, now scheduled to get cut 21 percent in January based on a previous congressional payment-rate policy that has now run amok.)
For a while, some Democrats liked to deflect calls for entitlement reform by suggesting that what the country really needs is a health-care plan that slows the pace of rising costs. Indeed, it has become almost a mantra among some Obama apologists to say “health reform is entitlement reform.”
But the bills moving through Congress thoroughly discredit that contention. There’s no reform in these bills. They are entitlement expansions, plain and simple.
Indeed, the Obama administration likes to suggest it has a plan to painlessly root out unnecessary health spending without harming patient care. In truth, there is no such plan, and there never will be. The federal government has no capacity to drive greater efficiency in the diverse and complex health sector. When cost pressures mount, as they surely would if Obamacare passes, the federal response will be what it has always been in the past: price controls and arbitrary caps. All Americans will pay the cost with inferior quality of care and access restrictions. The proponents of the current bills are betting that, by the time this reality has sunk in, it will be too late to wean the public off of another vast and irreversible entitlement.
posted by James C. Capretta | 5:45 pm
Tags: CBO, entitlements, cost, Obamacare, Robert Samuelson, CMS
File As: Health Care
