Keith Hennessey on debt limit and health reform

Keith Hennessey has a long piece noting that a debt limit fight is bad politics and bad economics, that prioritization won’t work and that Republicans should instead fight it out around the sequester and the continuing resolution that is funding the government. It is a reasonable strategy that reduces the chance of economic calamity, while allowing them to make their policy case in the House of Representatives. The weak point of his strategy is stated in a simple sentence:

Propose specific entitlement spending cuts to substitute for the sequester cuts you don’t like (presumably in defense). On this one sit and wait for Democratic nondefense appropriators to panic. You won’t have to wait long. (emphasis mine)

Keith’s analysis of the politics of replacing the defense side of the sequester with specific entitlement cuts is likely correct, but the House Republicans will have to actually write down these entitlement cuts to trigger this effect. By entitlements, he means Social Security, Medicare and Medicaid. Given his past positions in health policy, he might include the tax expenditure on employer paid health insurance, which would be reasonable in my opinion. So, he is suggesting that House Republicans finally commit to a detailed health reform proposal and/or suggest cuts in Social Security (means testing Medicare and/or Social Security could also be proposed).

I completely agree with him that Republicans need to do this. That has been what is most missing from public policy debate since the passage of Obamacare–what Republicans are actually for in health reform. A few program specific thoughts:

  • Obamacare actually caps the heretofore unlimited tax preference of employer paid insurance via the Cadillac tax (in 2018). Republicans could call for a more direct capping of the preference that would serve to point out the subsidy flows to people like me with good jobs. I would be in favor. Of course the risk of altering this tax treatment is making sure there is a stable source of health insurance in case it serves to weaken the employer/insurance link (a good outcome IMO, all else equal). Well, Obamacare has a Medicaid expansion and is setting up exchanges, so the Republicans could embrace that now. Or propose an alternative to expand coverage, or they could just say we do not believe in using public policy to expand coverage. As Keith said in July 2012, unless Republicans clean swept the 2012 election, Obamacare would be here to say. Republicans could just acknowledge that and move to specific alterations they would like and maybe we could have a policy debate.
  • Medicare. Where to start. House 2012 Budget cut Medicare by $716 Billion over 10 years just like Obamacare. Gov. Romney pledged to restore the cuts, and start a premium support program in 10 years, thereby pledging to do nothing for a decade in Medicare. In Nov/Dec as part of fiscal cliff Republicans said we have to cut entitlement spending, but never said where or how. Keith says they should do so now. I agree. Reihan Salam suggests the Domenici-Rivlin approach. I think if you got rolling on an exchange-based-deal-cutting approach it could look something like this.
  • Medicaid. A block granting of Medicaid of the type and magnitude of the House 2012 Budget is a total non-starter; just ask all the Republican Governors, who didn’t have to say anything last Spring because they knew the budget would go nowhere. However, this is where a consequential deal could take place, that could actually improve care and reduce costs. My book calls for federalizing the cost of the dual eligibles to reduce left hand/right hand cost shifting, and moving low income Medicaid beneficiaries into state based exchanges down the road. Now this would be plenty controversial on left and right, but my point is that the care of the duals is a big problem from both a quality and cost problem, and the politically viability of Medicaid long term is in doubt, so we would be better served to move toward subsidized private coverage. Big changes are needed here in my judgement.
  • Social Security. I think it is laughable that Republicans will propose a Social Security cut. Think back to the Sunday before New Years when word bubbled about chained CPI for Social Security being in a deal, Harry Reid said no, and Republican Senators stampeding the cameras in the Capitol to say it wasn’t their idea. Now chained CPI and/or more means testing plus raising the cap to which the OASDI payroll tax applies back to the essence of the 1983 Reagan/O’Neill deal (90th percentile of wages) is inevitable at some point, why not now.

The Democratic party believes taxes has to rise more to have a sustainable budget, and has passed a health reform plan that has a logic that can be modified. It includes a Medicare cost containment strategy (IPAB) that is the part that Republicans seem to hate the most. Yet, elected Republicans have as yet offered no concrete legislative proposal to which they will commit. Thus, they say they don’t want to raise taxes more, and that we must address entitlement spending but don’t say how. We most decidedly do if we were to ever have a budget that balanced anywhere near 18-19% of GDP that they claim to want. The bottom line as I read Keith Hennessey is that Republicans should commit to these details now as part of the sequester and continuing resolution debate and fight it out. I agree, but will be shocked if they do.

update: fixed typo

About Don Taylor
Associate Professor of Public Policy at Duke University and author of Balancing the Budget is a Progressive Priority. On twitter @donaldhtaylorjr

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