CQ WEEKLY – COVER STORY
July 7, 2012 – 2:37 p.m.
Grand Bargain's Building Blocks
By Paul M. Krawzak, CQ Staff
Over the course of months of high-stress, high-stakes negotiations behind closed doors last year aimed at achieving a large deficit reduction package, one of the dozens of spending cuts that Republicans and Democrats considered was a plan to save $53 billion over a decade by adding restrictions to health insurance plans collectively called Medigap.
The idea was to have patients who purchase these supplemental policies, which cover gaps in Medicare, pay more of the initial cost of care. That would provide an incentive for people to avoid unnecessary treatments and would reduce overall Medicare costs. It might even result in lower premiums charged to patients.
Medigap is a popular and, many say, critical component of Medicare. But during several rounds of talks that began in the spring of 2011 and collapsed just before Thanksgiving, Medigap was among dozens of mandatory-spending programs that were on the table — programs that were identified, analyzed and readied to be rolled out in a grand bargain that never came.
Lawmakers and staff members active in the negotiations have largely kept these mandatory-spending-cut proposals under wraps. But a review of scores of spending-cut proposals floated last year and interviews with knowledgeable lawmakers and aides show clearly that the negotiations produced a substantial body of cuts that would probably be agreeable to all sides.
Altogether, proposals that showed bipartisan promise totaled more than $500 billion in savings over a decade. However substantial a sum, the figure fell short of what was needed for an agreement last year. But the existence of these proposals — which remain very much alive — suggests that the two parties made huge progress on at least the spending side of their talks and that any new deficit reduction talks can begin with much of the preliminary work already done.
To many participants in the negotiations, the programs identified last year represent potential common ground for a future agreement as the country faces a $1.2 trillion automatic spending “sequester,” the expiration of about $3 trillion in tax cuts and many other fiscal issues that will come crashing together as 2013 begins.
Tennessee Republican Sen.
The proposals that drew support from both sides range from scaling back the federal contribution to civilian and military retirement programs to cuts in agriculture subsidies. They include reductions in payments to Medicare and Medicaid providers, which Republicans typically oppose, as well as reduced payments to, or larger contributions from, beneficiaries of government health insurance, which Democrats usually are against.
Other ideas represent potential trade-offs between regional interests. For example, one would reduce supplementary federal payments to rural hospitals by $14 billion over a decade. It might be balanced by a similar cut in federal payments that help cover the cost of training resident physicians in urban hospitals.
None of these proposals were definitively agreed to last year. And unless Democrats and Republicans can bridge deep differences over raising taxes and attempting a more elaborate overhaul of entitlement programs, these proposals by themselves are unlikely to be enacted. But taken as a group, the prospective reductions add up to enough savings from mandatory programs to provide a common starting point for new negotiations that may begin during a lame-duck, post-election session of Congress.
On both sides of the aisle, lawmakers were deeply serious about the nature of the proposed cuts. That has been evident in the way Congress has poached some proposals that were intended to reduce the deficit and used them instead to offset the budgetary effects of legislation in the past year.
Lawmakers have plugged more than $90 billion in deficit reduction measures into two extensions of the temporary payroll tax cut and the surface transportation reauthorization bill that Congress cleared last month.
Grand Bargain's Building Blocks
These include a requirement for the two mortgage-financing companies, Fannie Mae and Freddie Mac, to increase guarantee fees by about $36 billion, which was added to last year’s payroll tax cut extension. The most recent offset was an $11 billion increase in premiums charged by the Pension Benefit Guaranty Corporation, used against the cost of extending lower rates for government-backed student loans.
Although the PBGC provision seemed to come from nowhere during the student loan talks, sources said it was plucked from the list of last year’s possible spending reductions.
“I don’t want to mention numbers, but there’s a lot of commonality in a lot of proposals, which to me suggests a lot of agreement,” said Senate Finance Chairman
How Agreements Evolve
The Medigap proposal illustrates how the two parties have reached across the aisle to find spending-cut solutions that might be acceptable under the umbrella of a broad agreement, but that one side or the other would reject in different circumstances.
Finding savings through Medigap came up in discussions early last year during what were called the Biden discussions, after a bipartisan group of lawmakers were convened by Vice President
Obama formally sought an increase in the Treasury’s $14.3 trillion borrowing capacity, and House Speaker
Medigap savings looked attractive because about one in six Medicare recipients purchases a supplemental policy to help cover the health insurance program’s required deductibles and other costs.
But some studies suggest that these policies result in unnecessary use of medical services, because they eliminate or lessen the upfront costs to the patient. The Medigap proposal would require patients to pay some of the upfront or “first dollar” costs, providing an incentive not to seek unnecessary medical care and thereby reducing the cost of Medicare to the federal government.
Similar Medigap proposals received attention during negotiations that followed later in the year among the 12 members of the Joint Select Committee on Deficit Reduction — often referred to as the supercommittee. The life of the idea illustrates how a proposal can garner bipartisan support.
Although details of the proposal have not been formally spelled out, similar ones over the years would bar Medigap plans from covering the first $500 or so of a patient’s cost sharing and a portion of additional costs up to an annual cap.
The president’s National Commission on Fiscal Responsibility and Reform, commonly called the Simpson-Bowles commission, recommended such an approach in its plan, as did Sens.
Grand Bargain's Building Blocks
Some Republicans like the idea, believing it would help cut health care spending because patients would become more aware of the cost of medical care and would become more thoughtful consumers, too. Studies indicate that even as the policy change discourages unnecessary medical care, it also may be a cost-saver for most patients if the lower costs bring down Medigap premiums.
Democrats are at least open to the change, because it offers a relatively painless way to reduce spending. In his fiscal 2013 budget, Obama proposed a different approach that would save $2.5 billion over 10 years by requiring Medigap purchasers to pay a surcharge on their plans starting in 2017.
Some lawmakers and other observers suggest that the coming together of the two sides on Medigap means progress toward a larger budget deal is possible.
“What both the Biden group did and the supercommittee did was get a much better understanding of policy options that might be considered in the context of a balanced agreement,” said Maryland Rep.
Van Hollen, the ranking Democrat on the Budget Committee, doesn’t say reaching agreement will be easy. Nor does he say either party will yield on deeply held beliefs. Still, he thinks a deal is achievable. “Without saying any particular area, there are areas where you can find common ground on savings so long as Republicans are willing to take a balanced approach to the overall package.”
More Than Spending at Stake
For Democrats, this “balanced approach” means raising taxes on the wealthiest taxpayers — and that is the point where the divide between the parties was deepest in 2011. (Conflict over taxes, p. 1376)
The Biden talks fell apart a year ago in June when House Republican leader
The talks quickly resumed among House and Senate leaders and the White House. Meanwhile, Obama and Boehner engaged in secret negotiations on a plan to cut spending by $1.7 trillion or more and raise revenue by $800 billion, according to various participants. The chance for a deal evaporated after Obama asked for an additional $400 billion in revenue, according to statements from Boehner’s aides.
Days later, the president and congressional leaders agreed on a more modest legislative package to raise the debt limit by at least $2.1 trillion. Passed in August, the Budget Control Act established 10-year caps on discretionary appropriations, saving $1 trillion in projected spending. The law also created the special joint deficit reduction committee, made up of six Republicans and six Democrats evenly divided between the House and Senate.
The joint committee was charged with finding an additional $1.2 trillion in budgetary savings. Led by Sen.
A Democratic aide familiar with the deliberations tells a similar story: “We did a lot of work on the supercommittee to make sure the pieces were in place for a deal to come together, if the Republicans ever decided to compromise on revenue.”
Grand Bargain's Building Blocks
In giving up on Nov. 21 without getting a deal, the joint committee triggered the imposition of $1.2 trillion in automatic cuts beginning Jan. 2, 2013. The first year’s installment will total $109 billion, with $55 billion from defense and the remainder from domestic discretionary programs and Medicare.
Still Work to Be Done
Proposals that constitute potential common ground for a budget deal are but a part of what congressional aides describe as a much larger “binder” of deficit reduction ideas, many of which have been put into legislative language and scored by the Congressional Budget Office and Joint Committee on Taxation.
Many ideas that potentially can attract bipartisan agreement were adapted from the Simpson-Bowles commission or from deficit reduction plans written jointly by former New Mexico Republican Sen. Pete V. Domenici and Democrat Alice Rivlin. Some came from vintage legislative proposals or from routine CBO analyses.
Some have been offered by Republicans, and others by Democrats. Together, they signal a willingness among lawmakers from both parties to shift positions, even if more work may be needed to gain wide support.
The Supplemental Nutrition Assistance Program, formerly known as food stamps, is an area where agreement is possible in principle, but the specifics are unsettled. Republicans would like to see 10-year savings of at least $20 billion from food stamps, but that is a far larger cut than many Democrats would accept.
Both parties have discussed expanding the means-testing of Medicare. During the Biden group talks, Republicans were open to reducing payments for medical equipment used in the home by $5 billion. Months later, Democrats offered a similar $5 billion proposal during the joint committee’s deliberations.
That many of the proposals were acceptable to both sides was evident when several of them later appeared in formal budget plans, including the fiscal 2013 budget resolution written by Wisconsin Republican
Nevertheless, lawmakers who served on the Biden group and on the joint committee are reluctant to endorse specific proposals and remain wary of describing them as common ground — even if that’s how they appear.
Some of the proposals surely would draw opposition from Republicans and Democrats based on political philosophy, constituencies, or simply the magnitude of cuts or revenue increases.
“You can only reach common ground at the end of the day when everything is part of the discussion,” Van Hollen said.
That reflects a fundamental element of the negotiations: Nothing is agreed to until everything is agreed to. Moreover, lawmakers are reluctant to discuss these proposals in detail, concerned that their ability to use them in a large deficit reduction agreement might be compromised if they are aired in public. And, of course, many politicians are loath to risk political capital on spending cuts or tax proposals that might never be enacted.
Election year politics have only hardened public positions on many of the programs that were under discussion last year, most prominently the health care programs that were on the table.
Grand Bargain's Building Blocks
And Democrats have an additional reason to avoid the “common ground” label. After insisting on the “balanced” approach that would include additional tax revenue, some Democrats who participated in the Biden group talks felt burned by Republicans, who would have been glad to enact hundreds of billions of dollars in spending cuts reviewed by the two sides without a corresponding tax increase.
One concern “with identifying cuts was that Republicans at the end of the day would try to pocket the spending cuts without coming forward and addressing the revenue side of the equation,” Van Hollen said. “And in fact, that’s what happened in the Biden talks.”
But the binders that include all these potential spending cuts still exist, ready to be opened up, even if the work to identify budget savings remains largely out of public view.
“I think those lists are very useful, and you need every item you can get to try to get to a $4 trillion number,” Corker said, referring to a commonly cited figure for what might constitute a grand budget bargain. “What people want to do is, they’ll throw a lot of these common-ground issues in as long as they believe the deal is big enough to solve the problem. What people don’t want to do is throw little items in and know that it’s going for some small non-solution.”
Joseph J. Schatz and Kerry Young contributed to this story.
FOR FURTHER READING: Budget agreement elusive, CQ Weekly, p. 1043; fiscal cliff ahead, p. 800; debt limit deal and joint committee, 2011 Almanac, pp. 3-11, 3-18.