Medicare

Busting the Budget: Healthcare Costs or Entitlement Programs?

Communications — Mon, 15 Sep 2008 04:00:00 -0400

A New America Event
09/15/2008 - 12:00pm

On Monday, September 15th, six experts in fiscal policy and healthcare policy debated the nature of the nation’s pending fiscal crisis at the National Press Club. Moderated by TaxVox editor Howard Gleckman, the event featured Henry Aaron and Alice Rivlin of the Brookings Institution, Julie Barnes and Maya MacGuineas of the New America Foundation, Robert Greenstein of the Center for Budget and Policy Priorities, and Eugene Steuerle of the Peterson Foundation.

Henry Aaron warned that long-term deficit projections would be unsustainable, but argued that two questions must be answered: what causes these deficits and what should the solution be? Although the answers need not be the same, Aaron explained that healthcare cost growth is both the primary driver, and should be the primary solution. He offered 5 conclusions:

Projected deficits are large and unsustainable.
Spending cuts and Social Security reform can help reduce them a little bit, and should be undertaken.
Healthcare spending, and the taxes needed to pay for them, should continue to grow faster than GDP.
Healthcare cost growth can be slowed considerably, greatly reducing the projected deficit.
The problem of future deficits is not an entitlement problem, but a problem of large and growing costs in the overall healthcare system.

Maya MacGuineas agreed that continued deficits would be unsustainable because they would hamper economic growth, reduce intergenerational fairness, and inhibit budget flexibility. She pointed to areas of agreement between the panelists, explaining that they each believed the deficit is projected to grow to unsustainable levels, and healthcare is a key driver of that growth. At the same time, MacGuineas warned about focusing entirely on healthcare cost growth since there still doesn’t exist much knowledge of how to sufficiently reduce healthcare costs to close the fiscal gap, and where there does, there is little political will. Given this reality, MacGuineas suggested the next President focus on a budget deal for the short-term, a comprehensive fix to Social Security, and “round one of healthcare reform.” Since we will inevitably spend more on healthcare as society gets older and richer, she explained, the solution must focus on all areas of the budget.

Julie Barnes spoke next, explaining that healthcare costs are the major reason that the budget is unsustainable. She took issue with both the argument that we do not know how to reform healthcare costs and that healthcare reform is politically unviable. Barnes pointed to studies which have shown that roughly one third of healthcare spending adds little or no value, and reducing just 10% of that waste a year would offer tremendous savings. She pointed to payment reform and care coordination as proven tools to help deliver healthcare more efficiently and at a lower cost. She also explained that both Presidential candidates have plans to reduce healthcare costs considerably, that both houses have strong bi-partisan healthcare reform plans, and that many of the major stakeholders are now in agreement on much of what has to be done.

Alice Rivlin then suggested that the panelists were in fact debating the wrong question. Rather than arguing over whether closing the fiscal gap should focus on entitlements reform or healthcare reform or tax reform, they should recognize that all three are important. Rivlin explained the there are really two problems driving entitlement growth – demographics and healthcare cost growth. Because of demographics, Social Security costs will rise rapidly over the next two decades and then begin to level off. Medicare and Medicaid, on the other hand, will rise steadily indefinitely. This means that Social Security is important in the short-term, while healthcare entitlements drive the deficit further into the future. Rivlin suggested five main solutions to the looming fiscal crisis:

Encourage people to work longer by both reforming Social Security and changing rules and incentives in private pensions.
Encourage more efficient distribution of medical care, using Medicare and Medicaid to lead payment system reform.
Move toward universal healthcare coverage with spending controls.
Shift healthcare expenses to the private sector where possible.
Reform the tax code to make it more equitable and efficient so that it can bring in the needed revenue without being overly burdensome to the economy.

Bob Greenstein agreed with Rivlin that no either-or situation exists, and made four points of his own:

There is no general entitlement crisis, and in fact all entitlements besides Medicare, Medicaid, and Social Security are shrinking.
Tax entitlements for healthcare and retirement need to be addressed.
Revenue matters, as evident by the fact that renewing all the Bush tax cuts is three times as expensive as reforming Social Security.
Healthcare cost growth is the single most important factor driving the fiscal situation.
Greenstein suggested that reforms to Medicare – such as higher premiums for the wealthy and many of the payment reforms suggested by MedPac – could be adopted, but they would close only a small part of the nation’s long-term fiscal gap. Social Security, spending, and tax reform might also help, but will be woefully insufficient. Therefore, he explained, it is impossible to solve the nation’s fiscal problems without slowing the overall growth in healthcare costs.

Gene Steuerle spoke last, arguing that “never before in history has so much been committed for so many people, so far into the future.” Ultimately, he suggested, allowing Medicare and Medicaid costs to grow automatically is a democratic issue – with previous generations taking decision-making away from current voters. Steuerle warned that we have considerable resources now pledged to “middle aged” retirees, since we have failed to redefine the elderly in light of increasing life expectancy. By continuing to retire in our early 60s, he suggested, we are not only driving healthcare costs upward, but also decreasing the number of tax payers (and amount of revenue), and slowing GDP growth. Turning to the healthcare system, Steuerle suggested perverse incentives encourage acute care over preventative care and more surgeons over more primary care doctors. He explained that he was not advocating less entitlement or healthcare spending, but rather arguing that we should make explicit decisions about how resources are allocated.

Howard Gleckman asked the panel what reform should be undertaken first. Rivlin suggested that policy makers should first use Medicare to “lead the way” toward more effective evidence-based care. Aaron agreed, but also believed that both candidates were proposing far too much in tax cuts, and should allow many of the Bush tax cuts to expire as scheduled in 2010. MacGuineas suggested that policy-makers should do whatever is most politically opportune at the time, but should push for as much change as possible since reforms tend to come in waves. Barnes suggested that politicians could build confidence from the voters and each other by first engaging in easy health reforms, such as the renewal of SCHIP, which would cost the federal government additional money. Greenstein believed that politicians should start by developing the infrastructure to make future healthcare reform possible (such as better Health IT), and cutting subsidies to Medicare Advantage. And Steuerle suggested the next President change the entire focus of government and point it toward long-term budgeting.

Gleckman then asked how much healthcare waste is really out there. Aaron explained that while there is some pure waste, most of what should be considered waste does have “some benefits for some people some of the time.” This makes it politically difficult to reduce waste – although we need to reduce high-cost low-benefit care. Barnes followed by explaining that one third of healthcare spending is on waste – roughly 5% of GDP. She pointed to payment reform and medical homes as a way to cut that waste. Steuerle suggested that the best way to reduce waste would be to put healthcare spending under some type of budget constraint. And MacGuineas warned that in an issue as complicated and personal as healthcare, it will be hard to identify waste – so we shouldn’t look at it as a free lunch.

The next questioner asked how the American people could be educated about the high cost of healthcare, and the “lousy results” we get in the United States. Aaron suggested that explaining these issues to the public would be difficult, and the focus should be on getting the elites to understand and push for solutions. Steuerle suggested that the smartest thing to do would be to change the defaults so that politicians could provide winners by increasing benefits and payments relative to what would happen automatically, rather than decreasing them.

Senator John Breaux next asked if comparative effectiveness research was worthwhile if it was only based on finding the highest quality care without concern for cost. Rivlin suggested that evaluating treatments on the basis of cost effectiveness was very important. Barnes agreed that cost and health outcomes both matter, but suggested that the latter was more important. Aaron warned that even with comparative effectiveness research in hand, it would be very difficult to ban ineffective or overly expensive care, but that we can use comparative effectiveness research to change incentives.

Howard Gleckman then asked whether there should be any types of caps on healthcare spending. Greenstein suggested that global healthcare caps would be impossible without single-payer healthcare, and a cap only on Medicare would be unsustainable as long as private healthcare costs continued to grow. MacGuineas argued that patient incentives need to give individuals a better idea of how things cost, with different amounts of cost sharing depending on the necessity of the treatment or procedure.

The final questioner suggested that entitlement growth represented a case of irresponsible spending. Steuerle agreed, arguing that the solution was not necessarily to cut public spending, but the budget for healthcare spending explicitly. MacGuineas agreed, suggesting that our baselines need to change to let politicians “spend more” rather than taking benefits away. She went further, expressing that the fundamental principle of governance should be that if you are going to spend more, you need to find ways to pay for it. Although this wouldn’t solve the problem, she suggested, it would stop things from getting worse. The bottom line, she explained, is that “if we are going to spend more on healthcare, we have to pay for it.”

-Marc Goldwein, Policy Analyst for the Fiscal Policy Program

Lessons in Entitlement Reform

Communications — Mon, 08 Sep 2008 07:15:00 -0400

A New America Event
09/08/2008 - 12:15pm

On October 28th, 1997, House Speaker Newt Gingrich and President Bill Clinton held a secret meeting where they reached a groundbreaking deal to create a centrist political coalition to reform Social Security and Medicare. Although the Lewinsky scandal ultimately undermined their agreement, the efforts of these men, and others in Congress, might serve as a model for members of both parties interested in addressing the long-term shortfalls in the nation's entitlement programs.

Steven Gillon will discuss the details of how this secret agreement came to be, as first revealed in his new book, The Pact: Bill Clinton, Newt Gingrich, and the Rivalry That Defined a Generation. Gillon will be joined by Charles Blahous and Ed Lorenzen, who were involved in bipartisan reform efforts during Clinton's presidency, working on opposite sides of the aisle. The panelists will discuss what can be learned from the reform efforts of the 1990s, and address the question of whether, and in what political environment, entitlement reform is possible.

Jacob Hacker in the Washington Independent | 'The Year of Healthcare Reform?'

Communications — Tue, 29 Jul 2008 06:53:00 -0400

New America in the News:

"Medicare naturally makes for strange bedfellows," Jacob Hacker, a political science professor a the University of California-Berkeley and the author of The Great Risk Shift: The New Economic Insecurity and the Decline of the American Dream wrote in an email. "Both conservatives and liberals have an interest in keeping the program's costs in line. The divisions are much deeper when it comes to expanding the role of government in health care -- and the political fight will be that much fiercer..."

..."Democrats should take away from the Medicare fight two big lessons," Hacker said. "They need to stick to their guns on the important principles, and they need to pressure moderate Republicans to break with the more conservative members of their party." LINK

Why Does Health Care Cost So Much?

Articles — Tue, 01 Jul 2008 14:41:00 -0400

Sandy and Charlie Murphy never imagined that paying for health care could put everything they owned at risk.

In 2002 the Murphys and their two sons were living a comfortable middle-class life in Scottsdale, Arizona, where Charlie, now 59, worked as a manager for Charles Schwab and where Sandy, now 60, was a part-time child advocate for the state. Then, in rapid succession, Charlie got laid off; Sandy quit to care for a son with health problems; Charlie discovered that his new employer set a $100,000 cap on lifetime medical-claim payments, necessitating a secondary policy; and the Murphys found themselves struggling to pay for health care. In 2006 their medical… more

Maya MacGuineas on American Public Media's Marketplace | "Managing a National Debt Addiction"

Communications — Tue, 20 May 2008 14:26:00 -0400

New America in the News:

While congressional negotiators build a federal budget for 2009, a group of bipartisan budget experts are launching a campaign to wean the government off what they call a debt addiction. John Dimsdale reports.

RENITA JABLONSKI: In Washington today, House and Senate negotiators will try to sketch out a federal budget for 2009. At the same time, across town, a group of bipartisan budget experts will launch a campaign to wean the government from what they say is a debt addiction. John Dimsdale reports.

JOHN DIMSDALE: Ever spend money you haven't got? The Committee for a Responsible Federal Budget says the government does it all the time. Today, the nonprofit group issues a 12-step program to help politicians deal with their addiction to spending money the government doesn't have. Maya MacGuineas is the group's president. She says politicians are to blame for deepening deficits -- but they aren't the only ones.

MAYA MACGUINEAS: We also have to ask voters to pay attention to these issues and not be kind of hoodwinked that you can have it all. Nobody really believes that we can have big tax cuts, new spending initiatives, and somehow we're not going to have to pay the price sooner or later.

The bipartisan committee's political stars include former Treasury Secretary Lawrence Summers and former Fed Chief Paul Volcker. They're asking the presidential candidates to make "living within our means" a priority. That includes fixing Social Security and health care, paying for any new spending, and using honest numbers.

Listen to this story on Marketplace's website: http://marketplace.publicradio.org/display/web/2008/05/20/us_debt_addiction.

Maya MacGuineas in CongressNow | 'Think Tanks Offer Latest Social Security Reform Plan'

Communications — Tue, 19 Feb 2008 16:02:00 -0500

New America in the News:

Think Tanks Offer Latest Social Security 'Reform' Plan (CongressNow, subscription only)

A new plan to reform Social Security released today would transform it into a true retirement insurance program to protect people against costs that exceed their means, according to a report released today.

The proposal, presented jointly by The Heritage Foundation the New America Foundation, would mandate retirement savings and insurance,while scaling back benefits for those who don't need them.

The proposal also would require a long-term budget plan for entitlements instead of automatic increases in spending.

"The motivation for this paper was looking at the fiscal path confronting is unsustainable," said Maya MacGuineas, one of the paper's authors and president of the Committee for a Responsible Federal Budget. "There's no way to sugarcoat this. It's not easy and it's not pain free."

MacGuineas noted that the budget doesn't have the flexibility it needs to meet demands as they come along. ...

"We need to invest in the next generation," MacGuineas said. "But we don't have the resources." ...

"Regardless of how high we raise taxes, even if we let President Bush's tax cuts expire we won't close the fiscal gap," MacGuineas said. more

Newtered

Articles — Mon, 01 Oct 2007 11:36:00 -0400

If you’ve never suffered the agony of low back pain, don’t worry -- chances are you will. About two-thirds of adults are hit with low back pain at some time in their lives, and for many the pain is sufficiently unbearable to send them hobbling into the doctor’s office. Yet although back pain is one of the most common conditions around, and although it costs billions of dollars each year in lost productivity, doctors still disagree over everything from how to diagnose the cause to what to do about it. The vast majority of low back pain -- even the… more

Feeding the Cancer Machine

Articles — Mon, 02 Apr 2007 07:16:00 -0400

Have you ever wondered why hospitals offer free cancer screening tests? You’ve heard the ads on radio, and seen them in newspapers, urging you to come to your local hospital for a free Pap smear, mammogram or prostate cancer blood test.

Hospitals would like you to think they are doing this out of the goodness of their hearts, that free cancer screening is a public service intended solely to improve your health. But there may be another motive at work here: providing free screening brings in new cancer patients, and cancer generates profits.

Has the profit motive gotten in the way… more

Committee for a Responsible Federal Budget Annual Conference

Communications — Sun, 18 Mar 2007 18:00:00 -0400

A New America Event
03/13/2007 - 3:00pm

The Committee for a Responsible Federal Budget's 2007 board meeting, conference and dinner discussion were held March 13 at the Hyatt Regency on Capitol Hill. This event brought together many of the nation's foremost fiscal policy experts from both parties to discuss the budgetary challenges facing the nation, and the prospects for addressing them before they turn into full-blown crises.

A detailed recap of day's conversations -- including the afternoon round table, OMB Director Robert Portman's spech, and the subsequent dinner panel -- is provided below.

Video of the dinner panel discussion on the 1990 Budget Summit, which featured Leon Panetta, William H. Gray, Bill Frenzell and Richard Darman and was moderated by Judy Woodruff, is available at right.

To learn more about the Committee and its work, please go to www.CRFB.org.

Budget Round Table

The meeting began with introductory remarks by President Maya MacGuineas, who briefly explained the mission of the Committee for a Responsible Federal Budget, and outlined three topics that she hoped the ensuing discussion would focus on: 1) Entitlement reform; 2) Potential areas of compromise on the budget, in particular those concerning Social Security and health care; and 3) Political strategies that can help "move the ball forward" towards greater fiscal responsibility in government.

Leon Panetta remarked that "we govern either by leadership or by crisis," a theme that he was to repeat throughout the board meeting. "At this point," he continued, "we know what the policy solutions on these issues need to be"; the real challenge is how to implement those solutions at a time of deep hostility and mistrust between the two political parties. In that respect, Maya's third question may be the most important of all.

Bill Frenzel introduced Congressman Frank Wolf (R-VA), who outlined for the Committee his SAFE legislation, co-sponsored with Senator Voinovich. Rep. Wolf's bill would create a bipartisan commission with 16 members, tasked with simplifying the budget process, boosting national savings, and solving the long-term entitlement shortfall. In his brief comments, Congressman Wolf emphasized that "everything would be on the table," including entitlements but also including defense spending. There would also be a series of public meetings held across the country in order to "educate the American people" about the looming fiscal crisis. Finally, he emphasized how important it is for the bill to accrue support from third-party groups like the CRFB, and asked influential figures in the budget world to write personal letters to Members of Congress urging the bill's adoption. And there is reason for optimism: "Sometimes in the House, the hardest issues can be the easiest ones to pass."

Congressman Wolf was followed by David Walker, Comptroller General of the GAO. Echoing Panetta, Walker stated that "the biggest deficit in America is the leadership deficit," and that the budget reform process has evolved to the point that the solutions are well-known, but the political will to implement them is lacking. As an example, he sketched out what he considered to be sensible, non-partisan solutions to the three major components of the budget deficit. Entitlements can be solved through discretionary spending caps, tax reform, base-broadening, and means-testing. The problems in Social Security can be remedied through supplemental accounts, the creation of a real, "untouchable" trust fund, and a higher retirement age. And health care can be solved through a guarantee of universal access, a federal health budget that would limit federal spending to some predetermined annual amount, a set of national practice guidelines that would standardize treatment and reduce the threat of litigation, and increased individual responsibility for health outcomes.

But whatever the reform, it will not pass unless it is bipartisan and broad-based. He agreed with Congressman Wolf and others that "a commission may be necessary" to pass these controversial measures without forcing Congress to pay a high political price. Following this discussion, he brought up three plans that in his opinion take steps in the right direction. The ultimate solution, he conjectured, may be a synthesis of all three: 1) The Wolf-Voinovich bill, which he praised for its willingness to put everything on the table; 2) the Conrad-Gregg bill, which requires a supermajority of legislators to vote for spending increases that aren't balanced by revenue increases; and 3) the Feinstein-Domenici plan, which would automatically force budget reconciliation, rather than keeping discretionary spending on "autopilot."

Following these two brief speeches, the floor was given to CBO director Peter Orszag, who made the following three points.

1) The long-term story here is not aging or entitlements, but health care costs that are spiraling out of control. "We do a disservice," he continued, "by uniting the health care issue with the aging issue," which represents a much less serious fiscal danger. Medicare, not Social Security, is what is driving up the costs of entitlements, and it is increasing so dramatically because of overall increases in the cost of health care, not because of our aging population.

2) Social Security is often spoken of as the easiest of the three major entitlement programs to fix, but this gets it backwards. When dealing with health care, there is an opportunity to eliminate waste and inefficiency without affecting health outcomes. On the other hand, Social Security is a cash-transfer program, so the only way to cut costs is to reduce benefits.

3) There is no crisis unique to Medicaid and Medicare. The problem is with systemic inefficiencies in the health care system, and so it follows that the solution is not to cut benefits, but to figure out a way to bring down costs.

Orszag had two suggestions as to how health care reform might be accomplished. First, the government should establish an entity that evaluates the effectiveness of new technologies and treatments, and uses that data to standardize treatment practices. Second, the increased use of information technology will reduce costly paperwork and will help doctors improve the quality of care through "rapid learning."

Jim Jones followed this discussion by introducing the topic of Wall Street and business buy-in for a program of fiscal responsibility: "how do you get the financial services industry to declare that we are in an economic crisis," in order to spur action from legislators? Bill Hoagland insisted that "there will come a time when Wall Street begins to focus on these issues," although it may be five years away. In response, Panetta asked whether the recent dip in the stock market contribute to a sense of urgency in the private sector to solve the budget deficit, to which Hoagland (who works in the private sector) answered that thusfar it has not. "Connecting the dots [from the stock market downturn] to the rest of the picture -- that's the step that hasn't been taken."

Stuart Butler, of the Heritage Foundation, hypothesized that "the politics of entitlement may be changing outside of Washington," citing as evidence his cross-country Fiscal Wake-Up Tour, where he met with a broad cross-section of Americans and talked to them about the coming entitlement crisis. He said that people respond with alarm when told of the large costs that will be borne by their grandchildren, and that many expressed a willingness to exchange a large but unsustainable benefits package for a less generous but more secure entitlement. "Maybe," he continued, "we should think of social insurance programs as actual insurance," meaning that programs like Social Security and Medicare should be shifted from universal entitlements to part of a comprehensive social safety net for the truly needy.

Eugene Steuerle was similarly engaged in the task of rethinking the very idea of long-term entitlements: "What is unique about the coming decades is that we have already committed these entitlement dollars" up front, tying our hands and reducing our flexibility to meet the fiscal challenges of the future. The solution should be a combination of triggers, automatic mechanisms, and limits on the growth of spending. And it will require a change in our mindset as well. Rather than making large budgetary commitments that extend decades into the future, we should determine the budget every two years, and carefully think about what programs to extend and what programs to eliminate with each new Congress. He also proposed two general principles that should govern all future decisions about the budget: 1) We should not have open-ended entitlement programs that grow faster than the economy; and 2) The full balance sheet for any new program should always be presented, so that the President is not able to manipulate the time frame to make a desired program appear cheaper than it will actually be.

Charlie Stenholm returned to Peter Orszag's idea of a best practices guideline for reducing waste in the health care industry, noting that it costs twice as much in Medicare dollars to treat a patient in Texas as it does to treat a patient in Iowa. He proposed a large-scale data mining project that would determine how much money is being wasted on frivolous or unnecessary procedures, in order to help states think about ways to contain growing health care costs. Orszag agreed wholeheartedly, stating that we "need more information than what the CMS [Centers for Medicaid and Medicare Services] can provide."

As Alice Rivlin pointed out, however, much of the relevant work has already been done by Dr. Jack Wennberg and his team at Dartmouth Medical School, who have published a series of studies on the variation in health care costs across the United States. Dr. Wennberg found that it costs 2.5 times as much to be treated in Miami as it does to be treated in Minneapolis, but that there is no appreciable difference in the quality of health outcomes between the two cities. The solution to rising health care costs, she stated, is a system that rewards doctors for following best practice guidelines and producing good outcomes. The current system incentivizes overtreatment by paying doctors more for every procedure they perform.

But Tim Penny evinced skepticism, contending that 1) even if it were possible to come to an agreement on best practices, getting buy-in from the medical community would be difficult; and 2) the states that spend more money on health care tend to be the largest states with the biggest Congressional delegations, presenting an intractable political problem to anyone who wants to scale back that funding.

Isabelle Sawhill returned to MacGuineas' original question (how can we move the ball forward politically?), stating that there were two effective strategies that would work well in tandem. First, budget wonks should take advantage of the short-term thinking that prevails in Congress. If the age of retirement is gradually raised, and phased in over a period of two decades, it will pass without controversy because sitting lawmakers won't have to pay a political price. Second, policy analysts should stop talking about the deficit in abstract terms ("the deficit this year is X trillion dollars"), and begin to talk about it as an obstacle to programs that people like. If people understand that the cost of a rising deficit is the diminution of their Social Security benefits, they will start to pressure Congress to rein in discretionary spending. Panetta agreed: "People will sign up for all kinds of reforms as long as it doesn't reduce their benefits."

MacGuineas weighed in with her own assessment of the politics of budget reform: "As much as I agree with the whole shared sacrifice, everything should be on the table approach, it won't compel the politicians to act." She wondered whether it would be possible to give Congress a sense of urgency without actually experiencing a financial crisis, suggesting the threat to sequester as a possibility, and asking what other rule changes might provide the kind of inexorable pressure that will be necessary to achieve concrete results.

For Stuart Butler, the answer is more education and a more transparent budget process. "Medicare Part D passed because most of the costs will be incurred outside of the standard ten-year timeframe." If the true costs of the program were emphasized to the public, it might not have passed with such popular support. Bob Bixby agreed: "if you raise the issue among key constituencies and in key locations," then you start to build pressure on Congress to take action.

Andrew Samwick, a professor at Dartmouth and a former economist on Bush's Council of Economic Advisers, shared some of his lessons from government service. First, a responsible fiscal policy will ensure either that the budget is balanced over the business cycle, or that it does not grow as a percentage of GDP. Until we can agree on that we won't make much progress. Entitlements, moreover, should be fully funded, and should never run a deficit. Second, "you can't pick and choose which fiscal dollars matter." The Bush administration, for instance, undermined its case for Social Security reform by signing off on the Medicare Part D entitlement. It is hard to warn about a coming entitlement crisis when you continue to pass new and expensive entitlements. Finally, "you can't be irresponsible with the general fund." If the administration cannot constrain discretionary spending, then it won't have the credibility it needs to cut down on entitlement spending.

William Niskanen, of the CATO Institute, shared four observations that ran the gamut of the issues under discussion. 1) Political solutions take time. It can be decades, sometimes the better part of a century, before a good idea is implemented. The important thing for policy experts is to develop the most convincing and cogent case possible, so that when the issue finally captures the popular imagination a solution is ready-to-hand. 2) If Congress wanted to address Social Security, as many in the room have already stated, the mechanics of a solution have already been worked out. 3) Health is certainly a big part of the coming entitlement crisis. The key is to focus on the supply side. This means taking on the AMA, state licensing boards, and other mechanisms that restrict the supply of medical services. If there were more doctors, and if doctors could travel freely from state to state, than the average cost of health care would be much lower. Consumers should also be allowed to purchase health care plans from out of state. 4) Niskanen reminded the group that a solution does not have to be everything they dream about. The perfect should not be the enemy of the good, and often piecemeal solutions will be all that is feasible.

But AARP Director David Certner insisted that the group return to Orszag's original insight. If what Orszag is saying is correct, then the real problem isn't with entitlements but with rising health care costs. As such, it is deceptive to lump Medicare and Medicaid (a serious problem) with Social Security (a minor problem) and then talk about a general "entitlement crisis" that is linked to changing demographics. In reality, the coming budget shortfalls have little to do with an aging population, and everything to do with health care costs that are growing without restraint. "Let's stop talking about the Social Security crisis and the entitlement crisis," he concluded, "and start talking about the economy as a whole." Douglas Holtz-Eakin also gave his support to this diagnosis.

Carol Cox Wait, former President of the CRFB, strongly disagreed. While agreeing that health care costs are growing at an unsustainable pace, she argued that entitlements also pose a serious danger to America's future, because these huge sums of already-committed dollars tie the hands of the next generation, and constrain its ability to adapt to new situations. For Cox Wait, some kind of means-testing for Social Security and Medicare will eventually be necessary.

Sue Tanaka also disputed the contention of Orszag and Certner. "I do think we have an entitlement problem," she stated. The budget is holistic, and even if some components of it are growing faster than others, it still makes sense to see where unnecessary spending can be cut out.

Chuck Blahous, who has served as a Social Security adviser to President Bush, added his own thoughts. "While the health care crisis may be larger," Social Security still presents a serious threat to the nation's fiscal solvency. As he pointed out, if we measure the Social Security shortfall using the same criteria the Greenspan Commission used in 1982, it is twice as big as it looks using the standard measurement. And the demographic facts speak for themselves: we will see a 24% increase in retirees in the coming decades, but only a 4% increase in workers.

For Stuart Butler, the attempt to separate health care costs from the more general entitlement crisis misunderstands the nature of the problem: "The cost of health care is whatever we are willing to spend on it, and if we refuse to set limits on federal health spending" then the system will have no incentive to lower costs. In other words, the key to reducing health care costs is to first reform Medicare and Medicaid, which are the biggest purchasers of health care services in the nation. "Medicare," he concluded, "is part of what drives up costs." Moreover, Butler detected a kind of infinitely regressive logic at work: "When you say you want to solve Social Security people say you have to solve entitlements as a whole; then when you want to solve entitlements as a whole, people say that you have to solve health care first. I fully expect that if we ever try to solve health care, people will tell us that we can't do that without first solving the problem of human evil."

Jumping on this insight, Niskanen proposed that all publicly-financed health care plans be changed from defined-benefit to defined-contribution. A premium subsidy could be offered to the indigent, calculated using a formula of income plus age.

Bill Hoagland agreed with David Walker's statement that "there is a crisis, and it is the crisis in health care," but took issue with his four suggested solutions. Universal access may be a noble goal, but it is certainly not a cost-saving measure; if anything, it is certain to raise costs substantially. Health Information Technology and electronic records that can be shared with other doctors is a great idea, but runs into serious and possibly insurmountable privacy concerns. Individual responsibility is too paternalistic -- "you can't legislate people's diets," and a federal budget for health care spending would just shift costs to the states and the private sector.

Jeffrey Liebman, a professor of public policy at the Kennedy School, doubted whether health care costs can be reduced as significantly as some (including Orszag) have suggested. "As we get richer, it's natural that we would spend a bigger fraction of our income on health care," especially since much of this spending is fueled by technological improvements and new medicines that simply cost more than the older ones. Liebman contended that spending as much as 25% of our GDP on health care may be optimal. "The problem is that this growth would enormously expand the size of government, so solving health care means solving taxes."

Richard Berner of Morgan Stanley stated that the business community is seriously exploring ways to constrain health care costs, and for the first time in several years may be "ready to get health care out of the workplace," even if it means higher taxes on corporate earnings or capital gains.

As MacGuineas pointed out, "the conversation seems to have become the Health Care Camp (address health care first) vs. the Budget Camp (address entitlements first). And I think that the budget is the more important of the two." She argued that: 1) regardless of what happens with health care, entitlements will consume an ever-growing share of the federal budget; and 2) most solutions to the health care problem would expand coverage, meaning that they would spend more money (at least in the short term) than they would save. That makes savings from Social Security all the more important.

Penny championed Paygo, arguing that it will be an effective tool for reining in Medicare spending. He also expressed support for the idea of a federal health care budget, stating that "there is a lot of money that can be saved in our health care system without scaling back coverage."

Sawhill sought to split the difference between the hawks urging restraint on health care costs, and those like Professor Liebman who argue that a wealthy society should spend an increasing percentage of its GDP on health care. Her proposal was to limit health care spending via a federal budget, and fund all health care spending through a dedicated tax such as a VAT. That way, if the public decides that it wants more federal dollars allocated it could lobby for higher taxes, making the cost of health care fully transparent. But Cox Waite was skeptical. Because health care entitlements are popular, she argued, the VAT would be voted higher and higher, but because taxes are unpopular, the higher VAT would be offset by other tax cuts, taking money away from general revenues. The result would be a budget that is more and more devoted to passing out entitlements, and less and less devoted to providing the kinds of services that most Americans need.

As the meeting drew to a close, both Panetta and Holtz-Eakin wondered how real budget reform could be accomplished: "Does the President go to Congress? Do you appoint a Commission?" Butler voiced his support for a Commission, but warned that it would have to go outside of Washington to build consensus. A plan that is developed behind closed doors will be a non-starter.

Penny offered three pragmatic suggestions: 1) Constant meetings with Presidential aspirants and their staffers, in order to make clear the importance of the budget as a national issue; 2) A scorecard for candidates, that would help the American public understand where each one stands on fiscal issues; and 3) A series of primary debates, sponsored by organizations like the CRFB, in order to get candidates committed to the idea of a responsible federal budget. To this list, Walker added that he has explored leveraging the internet to build awareness, and going to Wall Street to ask for the support of the financial services sector.

In closing, Niskanen urged the group to start talking about intergenerational programs like Medicare and Social Security as "inherently immoral," on the premise that they take money away from future generations to pay for privileges and benefits for the current generation. Samwick provided another perspective on this question, noting that these entitlements go disproportionately to the poor and vulnerable, while because of progressive taxation, those who pay for them are disproportionately well-off. "If we don't solve Social Security as an intergenerational issue," he warned, "it may return as a class issue."

Notes on the Speech of the Honorable Robert Portman, Director of the OMB

After praising the Committee for a Responsible Federal Budget as an organization that is political and nonpartisan, Portman gave a talk on the Bush Administration's current approach to the federal budget.

"We are facing up to our fiscal challenges, on your suggestion," he noted. As evidence, he cited the revenue numbers for the first five months of the 2007 fiscal year, which are much higher than anticipated. Moreover, the budget deficit will be between 1.6% and 1.7% of GDP, far below the historical average.

As such, the priorities of the OMB would be first, to keep the strong economy going, and second, restraining spending growth. He observed optimistically that the increase in nonsecurity discretionary spending was only 1.2%. Portman also took as an encouraging sign the Democratic Congress's emphasis on Paygo and other fiscal austerity measures.

A potential area of future savings is Medicare, where through measures that "right-size" reimbursements and employ additional means-testing, the projected $32 trillion shortfall would be reduced to $24 trillion. Meanwhile, the President would focus on covering more of the uninsured while ensuring transparency, accountability, and competition in the market for health care services.

Dinner and Panel Discussion

The dinner began with a brief opening speech by Maya MacGuineas, who recounted some of the successes and breakthroughs of the Budget Roundtable and introduced the five new members of the CRFB Board: Vic Fazio, Bill Hoagland, Jim Kolbe, Gene Steuerle, and Lawrence Summers.

This was followed by the introduction of PBS reporter Judy Woodruff and the four panelists who would be joining her for a moderated discussion of the 1990 Budget Summit: William H. Gray, former Democratic Representative from Pennsylvania, and Majority Whip during the Summit negotiations; Leon Panetta and Bill Frenzel, both of whom were involved in the negotiations as Congressmen from opposite parties; and Richard Darman, director of the Office of Management and Budget during the George H.W. Bush Administration.

To begin, each panelist was invited to share their thoughts and insights about the 1990 Agreement. Gray argued that it worked for three key reasons: 1) It had a good balance of cuts in spending and increases in revenues (a 70:30 ratio); 2) It instituted Paygo, laying the foundations for the budget surpluses of the 1990s; and 3) It built trust between members of Congress, leading to a thaw in relations and a decrease in partisanship that lasted for several years.

Besides emphasizing its length (five months), Frenzel derived five lessons from the Andrews Summit which he shared with the audience: 1) The need for rules, deadlines, and real negotiators if you hope to accomplish anything. The White House team was comparatively inexperienced, and the lack of rules led to frequent delays and misunderstandings. 2) The importance of a small group. The Andrews Summit had 25 Members from each House of Congress, plus representatives from the White House and Congressional staff. A smaller group might have come to the same compromise much earlier. 3) Have a preliminary group make an outline before inviting a larger group. If there is no basis for starting the negotiation, the summit can become interminable. 4) Don't host a summit without planning ahead of time. 5) Don't forget the political realities. If a deal is crafted between the negotiators, but it has no chance of passing the House and the Senate, then everyone has wasted their time.

Panetta, like the other panelists, praised the 1990 Summit as an immense success, and speaking in his capacity as a Clinton Administration insider, stated that "the 1990 budget agreement instilled a fiscal discipline that carried into the Clinton Administration." He added seven lessons of his own: 1) Don't isolate the non-participating members. 2) There must be bipartisan agreement if the principles decided on are going to survive the next Congressional election. 3) All the key players must be at the table. 4) Everyone should sacrifice something (typically this means that Democrats make some limited spending cuts, and Republicans agree to some limited tax increases). 5) It has to be enforceable, with real caps on discretionary spending. 6) A successful summit must have good leadership. In 1990 this meant Robert Byrd (who led the Democrats to compromise on spending cuts) and George H.W. Bush (who bravely went back on his "no new taxes" pledge). 7) Finally, there are no magic answers. A summit is not a silver bullet; it is just a way of concentrating the attention of key leaders on budgetary matters. If the political will to tackle these difficult issues is lacking, then there is little that a summit can accomplish.

Darman noted that the 1990 Summit led to the largest deficit reduction in history, and was "the single largest contributor to the surpluses of the 1990s." He offered a quick outline explaining when a summit is desirable: 1) When there is no single-party dominance of the Executive and the Legislative branch. Otherwise, there is little incentive to compromise. 2) When there are substantive problems with several elements of budgetary policy. 3) When there is a major political risk to both parties from raising taxes or cutting popular social programs. Part of the rationale for a budget summit is that it gives the two parties political cover. 4) When it is likely to succeed, based on: a) Commitment. b) Trust. c) Prior consultation. d) A mechanism which ensures the confidentiality of the process. e) A principle that "nothing is agreed until everything is agreed," which allows negotiators to explore politically-damaging compromises without committing to them. f) Qualified negotiators, especially among the Executive branch. g) When a moment of crisis is at hand. In August 1990 Congress was facing two crises: the Gramm-Rudman Act, which threatened serious cuts in social spending as well as defense spending.

Reviewing these seven criteria, Darman observed that "currently, none of these are true."

Panetta agreed that the time is not ripe for a repeat of the 1990 Budget Summit, citing the rancorous, partisan atmosphere that currently prevails in Washington.

In response to Woodruff's question, "How would you go about putting something together like what you had in 1990?", the panel responded skeptically.

For Gray, the key is to develop a sense of urgency among policymakers, most of whom would prefer not to deal with this issue until they absolutely have to.

Frenzel offered a list of four things that groups like the CRFB can do now: 1) Work to improve trust between the two parties. 2) Advocate reductions in the deficit. 3) Place the issue at the forefront of the 2008 Presidential campaign by making the candidates aware of its importance. 4) Support of advocacy groups for legislation that encourages fiscal responsibility.

Panetta agreed, and sketched out a list of his own: 1) Presidential leadership is absolutely key, although he was skeptical that "most people running for the Presidency will make deficit reduction their top issue." 2) If voters can be rallied to express their discontent with soaring budget deficits, as they were in 1992, then the issue might gain some traction. 3) Remember that if a bipartisan Commission on the budget is appointed, as many have proposed, there is always a strong possibility of being ignored. Panetta, who served on the Iraq Study Group, is particularly sensitive to this danger. 4) An economic crisis might precipitate the necessary changes, but there is certainly no guarantee.

Darman agreed that "a crisis is helpful, and may be necessary," citing the sequester threat in 1990 and the 1987 downturn in the stock market. When thinking about potential crises on the horizon, Darman pointed to the upcoming entitlement crisis. Waiting for a crisis, for obvious reasons, is not an optimal solution. "What is needed is a President who has [fiscal reform] very high on his or her list" to take the issue seriously and place it on their agenda early.

Q&A

Bruce Bartlett asked the panel in general, and Bill Frenzel in particular, "why the trade negotiating authority principle can't be used in the budget area." Congress, under this theory, would bind itself to an up-or-down vote, as it currently does on trade issues. Frenzel responded that the model might have some applicability, noting the similarities of Bartlett's idea to the bill sponsored by Congressman Wolf and Senator Voinovich. "It's possible," Frenzel stated, "but Congress is often reluctant to force itself to make decisions that could be painful. But it's a good idea."

Senator Voinovich stood up to address the issue himself. He stated that there is support in the Senate for serious fiscal reform, but that the President's refusal "to put everything on the table" is a major stumbling block. He asked the panel for their advice in moving the issue forward. Panetta advised him to wait until after the 2008 election, noting that the rancorous partisan atmosphere in Washington and the current administration's lack of political capital and unwillingness to deal will prevent constructive engagement. Frenzel seconded the idea: "Get it ready…get people acquainted with it, and it [fiscal reform] might be ready for a new President in 2008."

Robert Reischauer said that the reason the 1990 Summit was so successful was a combination of crises; "these were not normal times." To wit: 1) Gramm-Rudman would have forced the OMB into making steep cuts in social spending and defense if a deal was not reached on the budget. 2) America was sending troops to Kuwait. 3) The economy was slipping into a recession. The implication was that these conditions will be difficult to reproduce in the future.

In closing, Reischauer suggested that, whatever policymakers may plan, history is just as often made by accidents as by deliberate intentions. "One of the most important reasons that the Budget Summit was so successful was two crucial misjudgments." The first was the notice on the White House Bulletin, slipped in by mistake and without the consent of the President, stating that President Bush would be willing to put everything on the table in the upcoming budget negotiations, including a possible tax increase. The second was Senator Byrd's conclusion that the discretionary spending caps would quickly be abandoned by Congress, and so Democrats could safely sign onto them without the danger of their becoming permanent. As it happened, they lasted well into the 1990s, and were a crucial catalyst of fiscal discipline in the years that followed.

Wendell Primus, given the last question, stated that progress on the budget would not be made until the CBO and other impartial organizations came up with a way to score health care costs. Since "our budget problem," as he put it, "is our health care problem," there is a whole new set of actuarial challenges today that the participants in the 1990 Summit did not face.

New America Foundation research assistant Adam Lebovitz attended the Committee for a Responsible Federal Budget conference and dinner, and wrote this summary.

Peter Harbage on Medicare in The San Diego Union Tribune

Communications — Sun, 08 Oct 2006 23:17:00 -0400

New America in the News:

Visits to the doctor often leave Katherine Beatty feeling sicker than when she left home...

Beatty is part of a Medicare experiment to see if old-fashioned house calls can improve the health of some of the agency's sickest beneficiaries while saving taxpayers money.

If the three-year pilot project in California and two other states is successful, Medicare officials likely would try the service on a larger scale before asking Congress to make it a permanent part of the federal government's health care program for the elderly and disabled...

Politics also will play a role in determining the program's fate, said Peter Harbage, a Sacramento health care consultant and former assistant secretary with the California Health and Human Services Agency.

“It fundamentally depends on whether it can get through Congress,” he said. “It has to do with money -- who gets paid and how much. Hospitals, doctors and insurers will aggressively express their point of view...”

For the complete article, please visit The San Diego Union Tribune website.