BEYOND THE NUMBERS
At yesterday’s Joint Committee hearing, Erskine Bowles offered what he called a “split-the-difference” compromise between last week’s offer from Senator Max Baucus (and some other Democrats) and the subsequent Republican offer. But because the Baucus offer represented substantial concessions by the Democrats offering it, while the Republican offer represented little or no movement by Republicans, the Bowles “compromise” turns out to be a proposal that’s skewed well to the right. Indeed, it’s to the right of the proposal offered by House Speaker John Boehner in July when he and President Obama were negotiating.
The Bowles proposal and the Boehner offer have the same revenue number — $800 billion over ten years, relative to a current-policy baseline that assumes that Congress will make all of President Bush’s tax cuts permanent. That is $1.2 trillion less than the revenue increases recommended with bipartisan support by members of the Bowles-Simpson commission and the Senate’s “Gang of Six.” Relative to the baseline that both of those groups used — which assumed that the Bush tax cuts for people making more than $250,000 a year would expire — the Bowles proposal represents no revenue increase.
But while adopting Boehner’s revenue number, the Bowles proposal includes much deeper cuts in basic social programs than Boehner proposed:
- The Bowles proposal has $600 billion in Medicare and Medicaid cuts, compared to $400 billion in Boehner’s final offer to Obama.
- The Bowles proposal has $300 billion in cuts in other mandatory programs. Boehner and Obama had tentatively agreed on $200 billion to $250 billion.
Bowles sought to justify the $600 billion in Medicare and Medicaid cuts yesterday — $200 billion above the figure in the Bowles-Simpson plan — by saying that Congress could raise the Medicare eligibility age from 65 to 67, because 65- and 66-year-olds would be able to secure coverage through the new health insurance exchanges that the Affordable Care Act (ACA — i.e., health reform) will establish. This was a very sanguine statement on Bowles’ part, however, because no one knows whether the ACA will actually take effect. It faces tough judicial challenges and may well face a tough political challenge after the 2012 election.
In our view — and that of a number of other health care experts — the proposal to raise the Medicare eligibility age would be ill-advised even if the ACA’s future were assured; analyses from the Kaiser Family Foundation and others show that although raising the age would reduce Medicare costs, it would increase total system-wide health care costs, thus increasing the total burden that health care costs place on the economy (see here, here, and here). Nevertheless, the proposal to raise the Medicare age will be a legitimate fiscal-policy proposal to debate if and when the ACA is faithfully implemented and the health insurance exchanges are functioning well. But to raise the Medicare age without any assurance that the ACA will take effect — i.e., without a commitment from Republicans to drop their plans to repeal it, which they obviously won’t provide, and without a Supreme Court decision upholding it — would risk leaving many 65- and 66-year-olds with no insurance at all at the very time of life when they are developing more medical conditions and problems due to their age.
Those who would be most adversely affected if the Medicare age goes up and the ACA does not go forward would be 65- and 66-year-olds who are near-poor and don’t have access to employer-based coverage (or related retiree coverage); the Medicaid eligibility limit for seniors is between 75 percent and 100 percent of the poverty line in most states — that is, between about $8,170 and $10,890 for an individual in 2011. And near-poor elderly and disabled people also would be hit hard by the large increases in Medicare premiums and cost-sharing that would be needed to produce $600 billion in Medicare and Medicaid cuts, the number in Bowles’ proposal.
Bowles and other witnesses at yesterday’s Joint Committee hearing called for more “income relating” in Medicare — that is, asking more affluent beneficiaries to pay more — a proposal with which we broadly concur. But, because half of Medicare beneficiaries have incomes below $21,100 in 2010, it is virtually impossible to get $600 billion in savings over the next ten years without hitting hard at people below that income level, such as widows living on as little as $11,000 a year.
To his great credit, Bowles reiterated yesterday that a core principle of deficit reduction must be to “protect the disadvantaged.” Unfortunately, his “compromise” between a serious Democratic offer and a Republican stand-pat offer would lead almost inevitably to a significant violation of this important principle.