November 25, 2011

November 25, 2011
Last Chance for Medicare, Medicaid Reform?

Welcome to another day in my life. Today is Friday which is also called Black Friday in the United States because it is one of the biggest retail shopping days of the year as people get ready for Christmas. I hope you are having a safe and great Thanksgiving Day weekend. It has been a busy and stressful one for Dab the AIDS Bear and me.

From reading my blog, you know Congress is looking at Medicaid and Medicare reform. But is it the last chance for reform?

It would be easy to conclude that the supercommittee's failure means that the big, expensive health care entitlement programs - Medicare and Medicaid - are untouchable.

It would also be wrong.

The real lesson of the supercommittee's collapse is that the political elements have to line up just right to put the brakes on Medicare and Medicaid spending. It can be done, budget and health care analysts say.

But for the supercommittee, just about everything went wrong from the start.

The timing was off, coming too close to a presidential election. The co-chairs were not powerful enough. The work came too soon after a summer debt deal that Democrats hated. Republicans could not give the kinds of concessions on taxes that Democrats needed.

And the alternative to a supercommittee deal on health care entitlements - the 2 percent automatic cuts in health care payments and defense funding that will now take place in 2013 - was not harsh enough to force a deal on Medicare and Medicaid. In fact, it might even have been the easier way out.

All of which means Medicare and Medicaid are not off the table forever. "It certainly does not mean you can never, ever touch them, because we will have to touch them," said Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget. With several bipartisan deficit reduction plans already circulating, she said, "if people wanted to get to yes, there is a yes to be had."

Here are the elements the next deficit negotiators will need to have better outcomes:

Better timing. It was always going to be a stretch to get a deal on entitlements heading into a presidential election. Supercommittee Democrats did offer Medicare and Medicaid cuts - at one point, they suggested $350 billion in Medicare savings and $50 billion in Medicaid cuts. But they could not risk accepting structural changes to the programs - and Republicans could not offer the kinds of tax increases Democrats would have needed to convince their voters that the deal was worth making.

"Timing does matter. The two parties have to exhaust what political gain they expect to get in the taxes and entitlement fights before a deal can happen," said David Kendall, a senior fellow at Third Way, a centrist Democratic think tank.

The trouble all along, according to Gail Wilensky, who ran Medicare and Medicaid under the first President George Bush, was that "there are fundamentally different views on the appropriate next steps - are we spending too much or taxing too little? Having this debate in the year leading up to what is likely to be a contested election was a recipe for a stalemate."

But that does not rule out a deal right after the presidential election, just as President Bill Clinton and congressional Republicans compromised on a big deficit reduction package including Medicare and Medicaid savings in 1997 after fighting it out on the campaign trail.

"You had an election that sent a message to the country. You had both sides agreeing that working together was the best way forward," said Dean Rosen, a health care lobbyist who was a House Republican aide when that package was put together.

The right people. The supercommittee was not headed by the top leaders of each chamber of Congress, who might have had the clout to push through a politically sensitive deal. Instead, the two co-chairs were both lower ranking leaders: House Republican Conference Chairman Jeb Hensarling (R-Texas) and Senate Democratic Conference Secretary Patty Murray (D-Wash.).

That is a far cry from the 1997 deficit reduction talks, which included the White House, the top congressional leaders and the committee chairmen. Even though the supercommittee did have the chairmen of key health care committees - Senate Finance Committee Chairman Max Baucus (D-Mont.), House Ways and Means Committee Chairman Dave Camp (D-Mich.) and House Energy and Commerce Committee Chairman Fred Upton (D-Mich.) - Hensarling and Murray were not the powerful leaders who could have locked in a deal on their own.

And when individual supercommittee members did try to push forward with compromises - Baucus for the Democrats, Sen. Pat Toomey (R-Pa.) for the Republicans - they did not get the backup they needed from Senate Majority Leader Harry Reid and House Speaker John Boehner, according to MacGuineas.

Next time, Congress will be more likely to return to the normal process of sending Medicare and Medicaid proposals through the regular committees, using budget reconciliation and building support plans that way. The supercommittee's failure may well dissuade leaders from using this type of expedited process to address major tax and entitlement reform in the future. (Of course, the supercommittee was created after the regular order did not solve entitlement problems in recent years.)

More movement on Medicare and Medicaid. There is already some momentum to build on for the next round. Republicans and Democrats already moved toward each other in the supercommittee negotiations more than people might think from the gloomy headlines about the panel's collapse.

Republicans, for example, softened their ideas for restructuring the Medicare program. Rather than sticking with House Budget Committee Chairman Paul Ryan's plan which would have converted the program into a system of subsidies for private health insurance plans they proposed a variation suggested by former Sen. Pete Domenici and former Clinton budget chief Alice Rivlin. That version would have kept traditional Medicare as an option for seniors who didn't want a private health plan.

And even though the supercommittee Democrats turned down that idea and resisted GOP proposals to turn Medicaid into block grants, they were willing, in the context of a balanced deal, to make cuts, and that is a huge concession.

But even though the two parties have moved closer to each other - and will have a hard time dialing back any of their proposals next time - they will still face challenges in fundamentally changing the structure of the health entitlements. Seniors will always get nervous about any big overhaul to Medicare, and many governors will get nervous about Medicaid block grants that limit their federal funds even though some of them might like it ideologically.

The supercommittee certainly would have been able to get some savings out of Medicare and Medicaid, like payment cuts and greater use of managed care, but "the line they're always going to have trouble crossing is a fundamental restructuring" of the programs.

Movement on taxes. The fight over whether to raise taxes on wealthy people has nothing to do with health care - except that it is now the biggest roadblock preventing Democrats from considering any big tradeoffs on the health care entitlements. That fight is not going to get resolved until after the elections, if then.

"The Republicans will not want to deal with that until they absolutely have to, which will not be until after the elections," said Robert Bixby, executive director of the Concord Coalition. But once the elections are over, he said, "Substantively, nothing changes: They have to make a big deal on entitlements and revenues."

Resolution on health reform. Both sides need to know whether President Barack Obama's health care law will survive. And that will not be resolved until the Supreme Court rules on whether big pieces of the law are constitutional - and until the 2012 elections determine whether Obama will get a second term, or whether a Republican president will roll the law back.

The law itself affects Medicare and Medicaid - specifically, it contains cuts to Medicare and expansion of Medicaid. In addition, Democrats would be unlikely to accept such changes as raising Medicare's eligibility age if the health law doesn't survive, giving seniors another way of getting affordable insurance coverage as they wait to reach the later Medicare age.

With the current uncertainty, the law was untouchable for the supercommittee - but it will not be forever, according to Douglas Holtz-Eakin, a former John McCain adviser and president of the conservative American Action Forum.

The alternative really has to be worse. The whole idea of the trigger - the automatic cuts in health care and defense - was to present a scenario so drastic that the supercommittee would have to reach a deal. But that seems to have been true only on defense, where some Republicans are now talking about trying to undo the trigger before the cuts take place.

On health care, it was never clear to health industry lobbyists that the automatic cuts actually were the worst scenario. They knew what to expect - $123 billion in Medicare payment cuts - and there were supercommittee scenarios that could have hurt them more.

"The bottom line is that most of the proposals they have been talking about, about reforming Medicare, were significantly more than that," said G. William Hoagland, vice president of public policy at CIGNA, who was a top budget aide to former Senate Majority Leader Bill Frist. Since the across the board Medicare cuts would have been capped at 2 percent, Hoagland said, there always would have been health industry lobbyists saying they were better off with the across the board cuts than fundamental reforms to Medicare.

And since the automatic cuts were going to happen anyway, the supercommittee had an option where the members did not have to do anything at all.

"The assumption was that the trigger would have been so onerous that it would have forced them to make a deal. It is not at all clear that that language was not backwards and wrong," said Altman of the Kaiser Family Foundation.

The public has to be ready. That's the element that's least likely to change after the elections, though. Polls consistently show the public wants to reduce the deficit but doesn't want to touch entitlements like Medicare and Medicaid - a contradiction that always makes lawmakers' jobs harder, Wilensky said.

Even if the other elements of a deal come together, the public's mood will always be the biggest obstacle if the election does not give the president and Congress a clear go ahead.

"Whether the American public and its leaders will be willing to have this kind of discussion after 2012 is unclear," Wilensky said. "The more politicians are led to make unreasonable promises to get elected, the harder it will be. Eventually we will be forced to make these changes."

"We will see - but it is hard not to be discouraged."

Have a great weekend!

Until we meet again; here's wishing you health, hope, happiness and just enough.

big bear hug,

Daddy Dab