Enitlement Reform Options: The Clear Leaders
While it appeared a “Grand Bargain” was conceivable following the 2012 election, the unfortunate fact in the wake of President Obama’s ideologically combative State of the Union speech — and other recent smoke signals from Senate leadership offices — is that we’re headed for another depressing, budget crisis-to-budget crisis session of Congress at least through the 2014 mid-terms.
Despite the odds of major entitlement reform are now far less than 50/50, Politico, National Journal and other new reporting indicates there are several structural savings opportunities through proposals already on the shelf at influential progressive think tanks in Washington. The menu is as follows:
Social Security: ‘Chained CPI’ — Savings: $112 billion
The idea is to change the way the government figures out how much more seniors should get in Social Security benefits each year to account for changes in their cost of living. This new formula — a tweak to the consumer price index — would assume that people switch their buying habits when prices rise, rather than just buying the same things over and over. So, for example, if the price of ground beef goes up, someone might buy chicken or fish instead. The result: Social Security benefits will rise more slowly.
Social Security: Lift cap on taxable earnings — Revenues: $500 billion or more
Even if the Democrats accept chained CPI, they’re going to want something in return. One big one: Let the highest earners pay more Social Security payroll taxes. Lift the cap so 90 percent of all Americans’ earnings are taxed — it’s only about 83 percent now — and a Social Security deal could raise about $550 billion in revenues over the next 10 years, according to estimates by Third Way, which has endorsed the approach. It would also wipe out Social Security’s deficit through 2020.
Medicare: Expanded means testing — Savings: $20 billion
Obama has said he won’t consider Medicare changes that would shift costs to seniors, but an expansion of the program’s means testing is the one benefit cut Democrats have hinted they might accept <http://politi.co/WfWdNI> — because it would hit wealthier seniors and spare the rest. There’s already some means testing of premiums for Medicare coverage of doctors and prescription drugs, thanks to Obamacare and the 2003 law that created the Medicare prescription drug program. The version that Obama proposed in his 2011 deficit plan and could put on the table again, would extend that means testing to charge higher premiums and hit a larger group of seniors.
Medicare: Faster payment reforms — Savings: $10 billion
Republicans often complain that Democrats don’t want to make any real changes to bring more money into Medicare — they just want to keep cutting payments to providers. But there’s no real controversy over Obamacare’s incentives to provide more efficient medical care, and that’s where some on the left think there’s potential for common ground — by just beefing up those experiments.
Medicare: Drug rebates — Savings: $135 billion
One of Obama’s biggest Medicare savings ideas would come straight out of the pockets of drug companies — which means he’d face a fight, but probably not from Democrats. Right now, pharmaceutical companies have to pay a rebate when the government buys prescription drugs for people on Medicaid but not for low-income seniors who qualify for both Medicare and Medicaid. The proposal, which Obama included in his deficit plan, would make the drug manufacturers give the same rebates for these “dual eligibles,” adding up to huge savings for Medicare.