Tuesday, December 7, 2010

Why Obama's Deficit Commission Makes Me Miss Bill Clinton

Cross-posted from National Review Online.

UPDATE: National Review Online has posted an audio version of this article. So, if you’re puttering around the house and you feel like listening to someone read this article on your behalf, this mp3 file is for you:

It’s an oft-repeated joke in Washington: When the going gets tough, the tough appoint a commission. Presidents appoint commissions so they can say that they’re “doing something” about a politically thorny problem without actually making any difficult choices.

But congressional commissions aren’t always the joke they’re made out to be. In 1988, as the Cold War came to an end, Congress organized the Base Realignment and Closure Commission as a way of reducing our military footprint. The unorthodox idea was to close obsolete military bases on strategic merit, rather than the parochial interests of individual congressmen. The BRAC process was an enormous success, and the “peace dividend” that BRAC generated did much to balance the budget in the 1990s.

In 1997, Congress created the National Bipartisan Commission on the Future of Medicare as part of the Balanced Budget Act of that year. Led by Sen. John Breaux (D., La.) and Rep. Bill Thomas (R., Calif.), and with a staff headed by an unknown 26-year-old named Bobby Jindal, the Breaux-Thomas Commission put together the most credible plan for Medicare reform ever to receive bipartisan support. Unfortunately, because of the political dynamic fostered by the Monica Lewinsky scandal, that plan never made it into law.

President Obama sought to draw on the credibility of these commissions when, last January, he established the National Commission on Fiscal Responsibility and Reform. The president had already signed the $1 trillion stimulus package and was assembling the votes to push Obamacare through the House. He needed to throw a sop to those who were complaining about deficit spending. And a sop is what he got.

The commission, as designed, consisted of 18 members: six appointed by the president, six appointed by the House, and six appointed by the Senate. President Obama chose former Wyoming senator Alan Simpson, a moderate Republican, and Erskine Bowles, who was chief of staff in the Clinton White House, to lead the commission. Obama’s other appointments consisted of one Republican and three Democrats, and the House and Senate each sent three Democrats and three Republicans. For anyone keeping score, that adds up to ten Democrats and eight Republicans.

This was a commission set up for failure. In order to endorse a formal proposal, the commission required 14 votes out of 18: 78 percent of the commission’s members. When you consider the fact that Andy Stern, a left-wing laborite, was never going to vote for any serious deficit-reduction measure, you’re talking about 14 out of 17, or 82 percent. It’s hard enough to get a simple majority of politicians to agree on deficit-reduction measures, let alone a four-fifths majority. And that’s before you consider the fact that Republicans, who are normally more sympathetic to deficit-reduction measures, were outnumbered: Even if all eight of them supported the commission’s findings, six out of ten Democrats would also need to join in.

Given these odds, it’s somewhat miraculous that the commission came up with any useful ideas at all. To its credit, the Commission made constructive proposals for capping discretionary spending, reforming Social Security, and simplifying the tax code (albeit with substantial tax hikes).

But the commission utterly failed in the area in which it needed most to succeed: steering our health-care entitlements onto a sustainable path.

According to the long-term outlook of the Congressional Budget Office, nearly the entirety of the growth in federal spending -- and hence the entirety of the growth of our fiscal cancer -- is driven by runaway spending on health care: Medicare, Medicaid, the Children’s Health Insurance Program, and Obamacare’s exchange subsidies. In contrast, over time, Social Security and other discretionary spending will actually stay relatively constant as a percentage of GDP.

When it comes to health care, the commission’s plan would hardly prevent a fiscal collapse: Instead, it would guarantee one. By replacing the meaty plan of the old Breaux-Thomas group with a hodgepodge of half-measures, the commission did nothing to address the fundamental flaws in government health policy.

First off, this being President Obama’s commission, repealing Obamacare was off the table. Hence, any consensus would involve endorsing and ossifying the budget-busting aspects of our new health-care law: the massive expansion of Medicaid and the huge new insurance subsidies for lower-income individuals. (The CLASS Act, a new entitlement for long-term care, was a notable exception; the commission did recommend its repeal, if it cannot be adequately reformed.) Spending on these programs is certain to exceed CBO projections, and tax rates can’t increase fast enough to make up the difference.

The commission missed other opportunities for reform. Instead of eliminating the employer tax exclusion—the tax break that allows employers but not individuals to buy health insurance tax-free—the Commission proposed tinkering around the edges: capping the deductible amount at the 75th percentile of premium levels and reducing the “Cadillac tax” on expensive health plans.

In contrast, real reform would either eliminate the exclusion altogether, or give individuals the same tax break, so that individuals could buy insurance for themselves. This reform alone would transform our health-care system and is arguably more important than any other. Instead of seizing this opportunity, the commission chose to dabble in it.

On Medicare, the commission did its least bad work. The core problem with Medicare is this: If people are able to get an unlimited amount of health care for free, they will use more of it than they need. There are two ways to solve this problem: (1) giving seniors more control over their own health-care dollars, so they have an incentive to spend the money wisely; or (2) empowering government bureaucrats to deny care when they find it too costly. It won’t surprise you to learn that the commission leaned toward option number 2.

The commission did make some constructive proposals on the free-market side: It proposed (very modestly) increasing the degree to which seniors share in the costs of care, and it proposed (again, modestly) restricting the ability of private insurers to offer “Medigap” plans that wipe out Medicare’s cost-sharing provisions. The commission proposed ending the practice of reimbursing hospitals and doctors for bad debts caused by failure to collect co-payments from patients, something that should have been done a long time ago.

But they proposed these measures only to pay for increased spending elsewhere, and other needed reforms were nowhere to be found. The commission didn’t address the need to index the Medicare retirement age, nor the need to means-test Medicare benefits. Paul Ryan’s proposal to gradually shift Medicare from a defined-benefit to a defined-contribution plan—one that would do much to solve the fiscal problem—was shriveled into a symbolic pilot program within the Federal Employees Health Benefits System.

The rest of the commission’s proposals for Medicare involve enhancing the reach of Obamacare: expanding the authority of the Independent Payment Advisory board; applying Medicaid-style drug-price controls to Medicare; and accelerating the implementation of the legislation’s Medicare pilot projects.

On Medicaid, a $500 billion–a–year (and growing) program that has somehow managed to become a fiscal crisis and a humanitarian crisis at the same time, the commission proposed essentially nothing. They aspire to “restrict and eventually eliminate” a Medicaid tax loophole that states use to bilk the federal government, for savings of around $5 billion a year, though they didn’t specify how to do it. They hope to pass some administrative costs to the states, for a “savings” of under $300 million a year. They recommend that Washington grant waivers to certain states, under a plethora of conditions, to experiment with their own ideas for Medicare reform.

Given that Medicaid is the program most immediately in crisis, with the potential to drive large states such as New York and California into bankruptcy, the commission’s silence on Medicaid is breathtakingly irresponsible. It’s one thing for the Commission not to endorse real Medicaid reform: but to not even propose it?

If you’ve managed to get through the preceding 1,300 words, let me summarize them in one: punt.

On December 3, the commission’s findings received the support of eleven of its members, well short of the 14 it needed to make an official endorsement. (Those opposed included Max Baucus, all of the House members save John Spratt, and—wait for it—Andy Stern.) But on the critical issues surrounding health-care entitlements, the commission, as a group, got nowhere.

Is there hope for Americans concerned about our fiscal dysfunction? Yes, some. The commission’s final report does contain a few measures that the next Congress would do well to consider. The path forward, however, is most likely to revolve around proposals put forth by individual commission members. James Capretta praises the plan from Paul Ryan and Alice Rivlin, which, while imperfect, far exceeds the commission’s work in wrestling with health-care entitlements. Importantly, come January, Representative Ryan will be in charge of the House Budget Committee, and will be thereby able to put some of his ideas into actual legislation.

Ultimately, the failure of the National Commission on Fiscal Responsibility and Reform was a failure of leadership. One man could have done much to encourage the commission to take bolder steps and tackle the hardest issues. Unfortunately, that man was President Obama. Who could have figured that Obama would make Americans miss Bill Clinton?

1 comment:

  1. I was very happy that I discovered this website. I needed to thank you for this excellent information!!