Bowles-Simpson 2.0, Medicare age and the ACA

I said yesterday that the key to evaluating Bowles-Simpson 2.0 was its stance on the Affordable Care Act. Their initial report (lets say Bowles-Simpson 1.0; release Dec. 2010) assumed full implementation of the ACA, and did not suggest an increase in the Medicare age. Most writing on version 2.0 has focused on the shift from a roughly $1cuts/$1tax increase mix of 1.0, to the ~$3cuts/$1 tax increase nature of 2.0. For me, the key is clarity on the ACA and then laying out next health policy steps, in large part because health care costs are the biggest long run issue.

After the June 2012 Supreme Court ruling and the past election in which the ability to get rid of the ACA was readily available to the country and not taken, I find the lack of a clear statement of the ACA as the law of the land and “the only horse we have to ride” in the Bowles-Simpson 2.0 document to be both surprising and disappointing. I think they assume this, but they need to do more than that if the document is designed to produce an actual deal. Further, version 2.0 seems to embrace an increase in the Medicare age:

Reduce Medicare and Medicaid spending by improving provider and beneficiary incentives throughout the health care system, reducing provider payments, reforming cost-sharing, increasing premiums for higher earners, adjusting benefits to account for population aging, reducing drug costs, and getting better value for our health care dollars (Feb-Dec 2013) [emphasis mine]

This doesn’t surprise me, as I have written many times that while it is basically a bad policy that just shifts costs and doesn’t address them, I also believe it to be roughly inevitable, in large part because it sounds like it must be consequential. With the ACA in place it is a bad policy because, you are basically shifting costs from Medicare to exchange subsidies and therefore moving the healthiest slice of the biggest risk pool into a smaller risk pool where the same folks will be the sickest slice (actuarially speaking). If it takes raising the Medicare age to get to the point where the questions about the ACA are what is next to improve it, then sign me up warts and all. If anyone is talking about raising the Medicare age and doing away with the ACA, that is a truly horrific policy;count me out. Further, in states like mine that say we will not do the Medicaid expansion, by raising the Medicare age you are going to create groups of people who are very likely to be uninsured and to have relatively high costs (too young for Medicare, not poor enough for Medicaid) or who will stay on employer-based policies and making their insurance pool sicker (actuarially speaking), keeping their costs higher.

Here is a post on Bowles-Simpson 2.0 and Medicare assuming that raising of the Medicare age is a part of the new package, and further assuming that the age increase is the primary Medicare savings difference from the version 1.0 policy. If that is true, it (version 2.0) is not accounting for the shifting of cost from Medicare to exchange subsidies and Medicaid expansions, or it doesn’t assume its implementation. In fairness, their 2.0 plan is an outline and they say they are filling in the blanks after listening.

My bottom line is that I actually share their (Bowles and Simpson) rough desire of moving the debt-to-GDP ratio a bit lower in the next decade and putting it on a path down to ~50% or so over the next few decades. I think that Bowles-Simpson 2.0 is imagined by the authors as an attempt to find what could potentially pass in the current or an imaginable Congress, to bring this goal about. If the passage of such a plan is their goal, then Erskine Bowles and Alan Simpson should use whatever influence they have to make clear that moving ahead with the ACA, and finding the next steps that could get both political parties on board with health reform is actually the KEY to addressing our long range budget issues because we have got to have a framework through which to address coverage, cost and quality. Of course it can be modified; we will never be done with health reform, but turning back to some undefined health reform that the Republican party will show us later is a fantasy. Erskine Bowles and Alan Simpson should say so.

Bowles-Simpson 2.0

Erskine Bowles and Alan Simpson announced their intention to develop a version 2.0 of their grand bargain plan to reduce the deficit by $2.4 Trillion beyond the $2.7 Trillion in reductions enacted since the initial Fiscal Commission plan was released in December 2010. (Update: this document has a bit more). Their goal is to stabilize the debt-to-GDP at 70% or lower per the Committee for a Responsible Federal Budget. Several thoughts on all this.

  • The biggest stumbling block to a long term budget deal is a Republican party that has not made the shift from what they are opposed to in health reform, to what they are for. A party that proposes a Balanced Budget Amendment to cap federal spending at 18% of GDP without having a coherent health policy position is unserious and deserves derision. There appears to be some slow acknowledgement of this in some Conservative corners. However, what Republicans most lack are elected politicians who will have to legislate health reform who get this; they control the key committees of Commerce and Ways and Means, where the heavy lifting for the House will have to be done. They have done so for 25 months now and done nothing but vote to repeal the ACA.
  • My book Balancing the Budget is a Progressive Priority frames the long run budget issue as basically a health care issue and provides an example of a health reform deal that I claim the two parties would arrive at as a next step to the ACA if they negotiated their interests.
  • More clarity on health reform leads to the second biggest obstacle to a long run sustainable budget, which is that historical taxation levels have no hope of financing any plausible level of federal spending as the baby boomers shift from paying taxes to receiving Medicare, Social Security and Medicaid. The initial Fiscal Commission goal of federal spending of 21% of GDP is about as low as imaginable to me. That will take more on health reform. I am glad for the recent slowdowns in health care cost inflation, but am not ready to say this will be a long term trend; if they are longer term trends it will be easier. And the slowdown has already helped the deficit situation in the near term regardless of what comes next.
  • I don’t think of myself as a debt scold, in large part because I care about the policy more than the tone (Chait says scolds are the opposite). However, I suspect no one self identifies as a scold. I share many of the Bowles-Simpson targets about debt-to-GDP ratio, but view this goal through the lens of health reform next steps as the key.
  • A key thing to watch is what Bowles-Simpson 2.0 says about the Affordable Care Act; the initial report assumed its implementation. When people say the President made a mistake not embracing the original report (I say so in my book), that is not because I think Republicans would have passed it if he had done so; they would not have voted for the tax increases in contained. Embracing it and pointing out that it assumed the ACA could have made a difference in the country’s moving ahead with acceptance of Obamacare more quickly. I think that we need next steps on health reform. Any Bowles-Simpson 2.0 that doesn’t note that the ACA is the only horse we have to ride and lets move on to figuring out how to improve it will be missing the best chance for us to address the biggest long term federal budget issue (health care costs).
  • I think the biggest liberal/progressive error being made now is not addressing long run Social Security reform while the Democrats control the Senate and the White House. Doing so sooner rather than later would provide maximum ability to include an  increase in the OASDI payroll cap tax, and progressive reforms that could improve the status of lower income beneficiaries. Republicans try and use generalized worry on deficit/debt to argue for their policy preferences (lower spending on some things), and liberals/progressives should do the same on a Social Security fix; something has to be done on Social Security disability sooner rather than later in any event.
  • The most important policy goal of President Obama’s second term is to implement that ACA. The biggest political goal of Progressives/Liberals should be to put the fingerprints of Republicans on the ACA in a way that makes the key questions what next? with both parties sharing responsibility for the hard work, instead of lets delay, repeal, replace. Especially given the fact that universal health insurance coverage is the policy holy grail for liberals/progressives and many red states are refusing the Medicaid expansion, we should look for ways to both implement and modify Obamacare to get these states to come along. Republicans should increasingly want a deal as they realize they have shown virtually no ability to move beyond what they are against in health reform. And Erskine Bowles and Alan Simpson know that health care costs are are biggest long term challenge to developing a sustainable federal budget. So, the key question for Bowles-Simpson 2.0 is: what about the Affordable Care Act?
  • Finally, while I find the grand bargain talk very interesting and intellectually pleasing, I think that the death of normal order was made inevitable by the release of the first fiscal commission report. Both houses of Congress will have to pass something, and the President will have to sign it.

Update: Many are writing that the Bowles-Simpson 2.0 has about $3 in cuts/$1 in tax increases., a big difference from the ~$1/$1 ratio of the first plan (though it is quite vague, and more of an outline which good be viewed as good, bad or both). Ezra Klein talks about this and other things this afternoon with Erskine Bowles.

Cooper-LaTourette was not Bowles-Simpson

The Bipartisan Policy Center has a post up on the budget resolution offered last night by Rep. Cooper (D) and Rep. LaTourette (R),and which was overwhelminngly rejected (it got only 38 votes). This budget has been referred to as Bowles-Simpson after the report/proposal from the fiscal commission chairs, but it differed substantially from that proposal in two main ways:

  • raised around $1 Trillion less in taxes over 10 years
  • cut non-defense discretionary spending by much more

As Loren Adler (@LorenAdler) and Shai Akabas (@ShaiAkabas) note, the budget is notable in that it was offered by a Democrat and a Republican, but it is not correct to say that it was Bowles-Simpson. They have two nice charts comparing all the budgets that have been debated in the House, compared to Bowles-Simpson and the Bipartisan Policy Center’s Domenici-Rivlin plan, in terms of revenue and spending, and cumulative debt, both in terms of GDP in 2022.

Now, 38 votes (only 180 to go!) is not exactly suggesting a bipartisan budget is just around the corner, but at least members from different parties were talking. However, we shouldn’t say that Bowles-Simpson was rejected because there are some big differences between the reality of the budget offered by Reps. Cooper and LaTourette and Bowles-Simpson.