The Bottom Line

March 17, 2015

This morning, House Budget Committee Chairman Tom Price released his FY 2016 budget proposal, "A Balanced Budget for a Stronger America." The budget reaches balance in 2024 by cutting about $5.5 trillion of spending over ten years (relative to a "PAYGO baseline" which excludes savings from drawing down war spending), and it assumes an additional $147 billion in deficit reduction from a "fiscal dividend" that incorporates the longer-term economic benefits (and short-term economic drawbacks) of the deficit reduction contained in the budget.

Importantly, the budget puts debt on a clear downward path as a share of the economy, with debt falling from about 74 percent of GDP today to 55 percent by 2025. Even excluding the higher revenue, lower spending, and higher GDP created from the fiscal dividend, debt would still fall to 56 percent by 2025 and would still be on a clear downward path.

Chairman Price’s first House budget is very similar to last year’s budget by then-Chairman Paul Ryan. It gets the bulk of its savings from health care programs, particularly the Affordable Care Act, and also includes sizeable cuts to other mandatory programs. In addition, the budget calls for somewhat similar domestic discretionary cuts (while increasing defense spending) after abiding by the current spending caps in law for the first year, as the budget resolution did last year. Finally, the budget assumes the fiscal dividend would generate $83 billion of savings in 2025.

This last assumption is based on CBO's estimate about the economic benefits of the budget's deficit reduction, though we would caution against banking these uncertain savings. Still, even without the fiscal dividend, the 2025 deficit would only be $50 billion, or less than two-tenths of one percent of GDP. However, the budget might balance, because it calculates its savings against CBO's January baseline, which has a 2025 deficit that is about $49 billion higher than their most recent baseline released last week.

March 16, 2015

This weekend, The Wall Street Journal announced its support for the permanent Sustainable Growth Rate (SGR) replacement currently being negotiated in Congress. Although full details are not yet available, the legislation apparently has about $200 billion of costs, accompanied with roughly $60 billion of offsets – half from beneficiaries and half from providers. In other words, the legislation is largely unpaid for and would add about $140 billion to deficits through 2025, before interest.

Despite its long-standing support for controlling the growth of Medicare costs, The Wall Street Journal endorses this Medicare spending increase under the premise that the SGR itself is a “fiscal deception,” and that past offsets used to pay for avoiding it “are usually fake.” However, for the most part, these arguments do not stand up to scrutiny.

Below, we explain why many of their claims are either inconsistent with the facts or else counterproductive to achieving the overall goal of reforming Medicare and reducing its future costs.

Claim #1: Ending the SGR does not add to the deficit.

The Wall Street Journal claims that politicians are under a false “impression that the formula leads to real savings, and thus ending it adds to the deficit” and that “the SGR merely lets Congress hide the future spending it is going to do anyway.” Yet while it is true policymakers have continuously prevented the across-the-board SGR cuts from happening, they have also offset the cost of doing so 98 percent of the time. As Margot Sanger-Katz of The New York Times explained, “With only a few exceptions, Congress simply cuts other parts of the budget to compensate for the extra money for the doctors. And that money almost always comes from Medicare or other health care programs."

In fact, our analysis shows that these offsets -- nearly all of which are health-related -- will save about $165 billion (before interest) through 2025.

March 16, 2015

As doc fix discussions continue in Congress, three opinion pieces recently declared support for fully offsetting the cost of a replacement for the Sustainable Growth Rate (SGR) formula. Editorials in the Washington Post and National Review plus an op-ed in The Hill by Heritage Foundation Senior Fellow Robert Moffit all called for an SGR fix to be fully offset, in contrast to the current discussions that apparently would only offset part of the cost.

The National Review wrote:

The unpleasant fact is that there is no way to make our current entitlement programs sustainable absent deep structural reform. But if Congress is unwilling to undertake that reform, then keeping SGR as is, or fully offsetting the cost of repealing it, would be the next best outcome.

The worst outcome — abandoning those spending restraints while doing little or nothing to mitigate the fiscal impact of doing so — is, unfortunately, what is currently under consideration. If presented with that option, conservatives should put their foot down — on the neck of this profligate, deficit-swelling deal.

March 16, 2015

The federal government will reach its second Fiscal Speed Bump today, as the debt ceiling will be reinstated after having been suspended since last February. The Treasury Department will be able to push back the actual day of reckoning until the fall with "extraordinary measures," but lawmakers will have to lift it later this year to avoid a default on the debt. At times, raising the debt ceiling has involved unnecessary brinkmanship, but it has often been used as a catalyst to make important fiscal reforms. To further the latter and minimize the former, the Better Budget Process Initiative has proposed ten options to change the debt ceiling to make it a more effective tool for fiscal responsibility while improving financial stability in a new paper entitled "Improving the Debt Limit".

The paper divides the changes into four broad categories: linking debt limit changes to achieving fiscal targets, incorporating the debt limit into Congress's decision making, applying the debt limit to more meaningful measures, and replacing the debt limit with a limit on future obligations. The ten options are below: 

Link changes in the debt limit to achieving responsible fiscal targets

1) Presidential authority to increase the debt limit if fiscal targets are met
2) Presidential authority to increase the debt limit if accompanied by a plan to put debt on a declining path as a share of GDP
3) Suspend the debt limit automatically if fiscal targets are met

March 16, 2015

Maya MacGuineas, President of the Committee for a Responsible Federal Budget, testified last Wednesday in front of the Senate Budget Committee for a hearing on the benefits of a balanced budget.

In her testimony, MacGuineas told Senators that we are not out of the woods yet from the economic problems following the Great Recession and that critical national objectives require controlling our historically high national debt.

MacGuineas’ testimony focused on four key points:

Our deficit and debt problems are far from solved.

While the deficit has come down by about two-thirds since the 2009 peak, this was only after a 780 percent increase in the prior two years. Importantly, the recent declines in the deficit are only temporary. The deficit is only projected to shrink for the next three years, and trillion-dollar deficits are projected to come back within a decade. In addition, CBO’s already-bleak projections might be too optimistic, since they assume that lawmakers won’t further increase the deficit, including by continuing temporary policies as they often have in recent years.


March 13, 2015

We've released our analysis of CBO's estimate of the President's budget, breaking down the report and its supplementary data in less than six pages. Our paper explains that CBO finds that many policies would save less than the President's budget claims shows debt on an upward, rather than a downward path.

Although CBO shows lower debt as a percent of GDP than OMB does, it also shows debt on a slight upward path after 2020, meaning the budget is less likely to stabilize debt over the long term using CBO's numbers (OMB's numbers showed stable debt through 2040). Debt would fall from 74 percent of GDP in 2014 to 72 percent by 2020 before rising gradually to 73 percent by 2025. Thus, the budget would likely have to do more to truly put debt on a sustainable path.

Debt as a Percent of GDP in the President's Budget

Debt would rise after 2020 because deficits would increase throughout much of the ten-year window. Although they would fall from $486 billion (2.7 percent of GDP) in 2015 to $380 billion (2 percent) in 2016, they would rise continuously after that to $801 billion (2.9 percent) by 2025. The 2025 deficit is lower than CBO's baseline deficit of 3.8 percent but higher than OMB estimated deficit of 2.5 percent.

March 12, 2015

CBO has just released its analysis of the President's FY 2016 budget, using its own numbers and methods to re-estimate the budget. While CBO reveals lower debt as a percent of GDP than OMB did when it estimated the budget, it also shows debt on an upward path after 2020. Thus, CBO's estimate demonstrates that the budget would have to go further to put debt on a truly sustainable path.

We will have a paper on the analysis later today and a deeper dive into different aspects of the re-estimate in the coming days. Stay tuned!

March 10, 2015

The latest CBO projections show a slight improvement on our fiscal situation over the previous ones made in January, and lower projected health insurance premiums are at the center of that improvement. Not surprisingly, then, the agency's latest estimate of the coverage provisions of the Affordable Care Act improved as well.

The net cost of coverage -- the coverage expansions net of mandate penalties, revenue from the Cadillac tax, and related effects -- dropped by $142 billion over ten years, from $1.35 trillion to $1.21 trillion. Simultaneously, CBO projects that there will be 4 million fewer people uninsured in 2025 than they did in January. There are plenty of different effects at work, so let's take a closer look at what happened with their ACA estimates.

The largest factor, lower private health insurance premiums, comes about as CBO takes into account the slower-than-expected premium growth from 2013 and puts greater weight on the slow growth since 2006. CBO now anticipates a slower bounce back in premium growth than they expected before as the economy continues to recover. As a result, projected 10-year spending on subsidies for health insurance purchased through the exchanges dropped by one-fifth, from $1.06 trillion to $850 billion.

At the same time, though, the lower premiums mean that the Cadillac tax on high-cost insurance plans will now raise $62 billion less than expected, continuing a trend of downward revisions to projected Cadillac tax revenue (the 2023 projected revenue is now 60 percent less than was expected two years ago). The lower premiums also translate to lower revenue as a result of the fact that people losing employer coverage due to the ACA will have less compensation shifted into taxable income (lower anticipated premium growth similarly increased CBO's projections of baseline wages and salaries).

March 10, 2015

In light of the upcoming Fiscal Speed Bump when the most recent doc fix patch expires on March 31, yesterday we released an update to our Paying for Reform and Extension Policies (PREP) Plan, which illustrates how to responsibly replace the Medicare Sustainable Growth Rate (SGR) with a permanent solution. In just 3 pages, we describe a fiscally sustainable approach to finally solving the decade-long problem of the large physician payment cuts that the SGR proscribes (21 percent in the current iteration).

Building upon the bipartisan, bicamerial tricommittee bill introduced last year to replace the SGR with alternate payment models, we go one step further by proposing $215 billion of offsets to pay for the replacement and a package of "health extenders." Not only would this avoid adding to deficits, it would also provide greater incentives for high-quality, coordinated care and help to bend the health care cost curve.

Click here to read the paper.

March 9, 2015

Did you know that nearly 75 dollars out of every 100 dollars in taxes paid goes to just four major areas? Monday’s USA Today front page featured data on the taxpayer receipt calculated by the Committee for a Responsible Federal Budget. The data compares federal spending in 2014 on major programs such as Social Security and defense to total federal government outlays. This generates an illustrative taxpayer’s receipt that shows what share of tax dollars goes to different programs.

March 9, 2015

In advance of its scheduled release of an analysis of the President's budget, CBO has updated its budget projections for the next ten years. Their new estimates show a somewhat improved but similar picture to their last baseline in January: slightly falling debt as a share of GDP in the near term but rising debt after that. Debt will dip from 74 percent in 2015 to 73 percent by 2018 but then rise to reach 77 percent by 2025. This blog goes into further detail about CBO's March budget projections and what changed since January.

Over the next ten years, deficits are projected to total $7.2 trillion, or 3.1 percent of GDP. Looking at individual years, though, deficits will be rising throughout most of the period. The deficit will stay around 2.5 percent of GDP through 2018 but rise steadily to 3.8 percent by 2025. These widening deficits drive the rise in debt after 2018, when it increases from a low of 72.9 percent in 2018 to 77.1 percent by 2025. The previous projection had debt reaching nearly 79 percent in 2025.

March 5, 2015

Congress approached and addressed the first impending "Fiscal Speed Bump" this week, cleanly funding the Department of Homeland Security (DHS) with appropriations through the rest of the fiscal year. The updated set of speed bumps now have two more approaching in March - the expiration of the "doc fix" for the Medicare Sustainable Growth Rate (SGR) and the reinstatement of the debt ceiling (though the Treasury Department's "extraordinary measures" will move the actual date for action to this fall). We wrote this week on both the prospects for the doc fix can getting kicked down the road until later this year or next and the hard deadline for the debt ceiling in the fall.

In the coming weeks, lawmakers will release their budget resolutions outlining their blueprints for Fiscal Year 2016. Their passage starts the appropriations process, which requires bills to be passed before the October 1 deadline, which coincides with the expiration of the Ryan-Murray budget deal.


March 5, 2015

The Senate Finance Committee held a hearing Tuesday on how best to achieve "tax fairness" as a part of their larger focus on tax reform. Testifying before the committee included Steven Rattner, the chairman of Willett Advisors LLC and a current member of the steering committee for the Campaign to Fix the Debt. Rattner's testimony focused on using the tax code to address income inequality as well as the need to increase tax revenue to a level that makes the budget fiscally sustainable, principles shared by Fix the Debt's Case for Fundamental Tax Reform.

Also testifying before the committee were Dr. Lawrence Lindsey, President and CEO of the Lindsey Group; Deroy Murdock, Senior Fellow at the Atlas Network; and Dr. Heather Boushey, Executive Director of the Washington Center for Equitable Growth. Each witness came to the hearing with a different stance on how the tax code currently treats earners and how it ought to treat earners.

Rattner emphasized the tax code’s historical use as a way of alleviating income inequality. The decreasing marginal tax rate for top earners, the rampant exploitation of tax expenditures, and out-of-date corporate tax scheme all contribute to a code that fails to address adequately the changing circumstances among many Americans, according to Rattner. Despite his long career in the financial services sector, Rattner advocated increasing the capital gains tax rate, saying that he did not believe there would be any change in work ethic among his investment banking colleagues if there were a higher tax rate:

But in my 32 years on Wall Street, I have experienced top marginal Federal tax rates as high as 50% and as low as 28%, and I never detected any change in the motivation to work on the part of myself or any of my colleagues.

March 4, 2015

The Supreme Court ruling on the King v. Burwell case being argued before the Court today will have major policy and political ramifications that have been widely discussed. But a ruling for the plaintiff (King) could also have significant budgetary implications that could complicate action on a legislative response to the Court ruling as well as any legislation to repeal and replace the Affordable Care Act.

The plaintiffs in King v. Burwell argue that language in the Affordable Care Act referring to subsidies to individuals purchasing health insurance in “an Exchange established by the State” means that individuals in the 34 states without a state-run exchange who purchased insurance through the federally-operated exchange are not eligible for the subsidies under the Affordable Care Act. If the Supreme Court rules in favor of the plaintiffs and strikes down subsidies for individuals in those 34 states, the number of people eligible for subsidies and total spending on subsidies would be significantly lower than it is under current law. According to estimates prepared by the Urban Institute, eliminating subsidies for individuals in all 34 states would affect 9.3 million people in 2016, reducing spending on subsidies for insurance premiums and cost sharing reductions by $28.8 billion in 2016 and $340 billion over ten years.

March 4, 2015

Repeating a story heard many times before, in a speech at a Federation of American Hospitals conference, House Ways And Means Chairman Paul Ryan (R-WI) indicated (subscription required) that a permanent replacement for the Sustainable Growth Rate (SGR) formula was not likely to pass by the March 31 deadline, and instead that lawmakers would do a short-term "doc fix" to buy more time.

The expiration of the current doc fix, one of this year's Fiscal Speed Bumps, would cause a 21 percent cut in Medicare physician payments starting in April as dictated by the SGR. That lawmakers are doing a short-term doc fix is unsurprising -- it's been standard operating procedure since 2003 -- but it is disappointing because they are as close to enacting a permanent replacement as ever before. Congress just isn't willing or able to agree on offsets to pay for it at this time.

What makes this situation different than previous times where lawmakers had to deal with the doc fix is that there is a bipartisan and bicameral agreement on a replacement system that would promote alternative physician payment models, and help transition away from fee-for-service payment. But while coming up with the replacement may no longer be an obstacle, the $175 billion cost through 2025 (up from $140 billion previously) apparently is, despite the fact that there are countless health care savings options available.

Our PREP Plan came up with $170 billion of savings through 2024 (adding in 2025 would bring this easily above $175 billion) through a combination of improving provider and beneficiary incentives. The appendix of that report also provides several other options that can produce tens of billions more in savings. The fact that lawmakers may have to resort to another short-term patch shows the downside of waiting until the last minute to fix a problem: they will need to spend time to negotiate a package, thus waiting takes that option off the table.

Policies in the PREP Plan

March 3, 2015

October or November -- that's the deadline by which the nonpartisan Congressional Budget Office (CBO) predicts lawmakers must increase the debt ceiling to avoid default.

March 2, 2015

Every year, the Treasury Department releases the Financial Report of the United States Government, which provides a detailed picture of the government's finances over the next 75 years. This year's report, released last week, shows a similar outlook as previous years; we are on an unsustainable fiscal path.

The report presents budget numbers in slightly different ways than CBO does. For one, instead of reporting an annual deficit, which was $483 billion in FY 2014, it reports the net operating cost. This measure differs in a few key respects:

  • It includes changes in government asset values.
  • It measures the increase in debt held by the public, a cash-flow measure, in contrast to the deficit, which uses accrual accounting for credit programs.
  • It includes the net liabilities of federal retirement and veterans' benefits (and similar programs).

The net operating cost is usually higher than the deficit, but it was much higher this year at $791 billion. Most of this is reflected in the fact that debt increased by a lot more than the official deficit did.

The Financial Report also measures net liabilities of the federal government over 75 years. In addition to the "net position," which is the stock to the net operating cost's flow (like debt is to deficits), it also separately evaluates the net social insurance liabilities of Social Security and Medicare and total net liabilities for noninterest spending. The current net position is $17.7 trillion, and the total noninterest liability going forward is $4.7 trillion, or 0.4 percent of total GDP over the next 75 years. Within the total noninterest liability is the net social insurance liability of Social Security and Medicare, which is $41.9 trillion (4 percent of 75-year GDP), or $14.1 trillion (1.3 percent of 75-year GDP) if current trust fund balances and Medicare general revenue transfers are counted. These totals are larger in nominal dollars than last year's report but similar as percentages of GDP.

February 27, 2015

Dr. Elliott Fisher, former Senator Judd Gregg (R-NH), and Dr. James Weinstein penned an op-ed published in Modern Healthcare discussing the need to move away from fee-for-service and towards accountable and effective care in Medicare. They discussed findings of a collaboration between the Dartmouth Institute, Dartmouth-Hitchock Health, and the Campaign to Fix the Debt to create a number of suggestions for establishing better Accountable Care Organizations (ACOs) through improving the financial model and patient engagement. The full findings are available as a white paper, released yesterday.

They noted the quick timeline that the Department of Health and Human Services (HHS) has established for moving to new payment models and the difficulties ACO implementation has faced thus far:

HHS is seeking to tie 85% of traditional Medicare payments to quality or value by the end of 2016 and 90% by the end of 2018; and having 30% of Medicare payments in alternative payment models—such as ACOs—by the end of 2016 and more than 50% by 2018.

Transitioning away from fee-for-service payment at such a pace, however, will require major improvements to alternative payment models and additional reforms, some of which may require Congress to act.

ACOs in Medicare—the largest alternative payment model—continue to grow in number, with 424 organizations now serving roughly 7.8 million beneficiaries, mostly within the Medicare Shared Savings Program. However, while the early results of the Medicare ACO programs are in many ways promising, they also highlight the need for further changes. Initial data on financial performance show that only about one-quarter saved enough money to generate shared savings. Many ACO beneficiaries are unaware that they are receiving care from the ACO and seek it from non-ACO specialists or healthcare agencies, making it difficult for the physicians in their ACO to coordinate and improve their care.

The solution to fixing ACOs, they write, lies in two separate strategies.

First, the financial model for ACOs should offer them a greater share of their initial savings (to help fund start-up costs), provide stronger incentives to induce and maintain participation from low-cost provider organizations, and foster alignment of payment schemes across all payer types—not just in Medicare. This strategy will encourage the growth of shared-savings models and motivate high-performing healthcare systems to join the ACO programs.

The second strategy would improve patient engagement in ACOs by modifying how Medicare beneficiaries are assigned to an ACO: Beneficiaries should be given the opportunity to choose to join their ACO; for those not actively choosing, those eligible should be assigned at the beginning of the year (so that their ACO can contact them). Medicare should also test a benefit design that uses modest financial incentives to encourage patients to seek care within their ACO or from providers outside the ACO whom the ACO recommends. Simultaneously, to make such incentives possible, supplemental Medicare plans should be restricted from covering first-dollar beneficiary costs for non-ACO services.

February 27, 2015

Speculation over the next director of the Congressional Budget Office ended today as the House and Senate Budget Committees announced that Keith Hall would become the ninth director in the agency's history. He will succeed Doug Elmendorf, who has been the director since 2009, on April 1.

As a labor economist, Hall has a long history of service within the federal government and in academia. He served as Commissioner of the Bureau of Labor Statistics between 2008 and 2012 and Chief Economist for the Council of Economic Advisers between 2005 and 2008. He also worked in the Commerce Department and is currently the chief economst for the International Trade Commission. Hall has been a senior fellow at the Mercatus Center at George Mason University and has taught there as well as the George Washington University, Georgetown University, the University of Arkansas, and the University of Missouri.

February 27, 2015

Ed Lorenzen, Senior Advisor for the Committee for a Responsible Federal Budget, testified Wednesday in front of the Ways and Means Social Security Subcommittee on maintaining the solvency of the Social Security Disability Insurance Trust Fund.

Without congressional action, the trust fund reserves will be depleted next year. The exhaustion of the DI fund, one of the upcoming fiscal speedbumps, would result in a roughly 20 percent across-the-board benefit cut. The President has proposed reallocating money from the Old Age fund to bolster the DI fund. This measure, known as a reallocation, has sparked much debate after a new House rule was adopted requiring legislation implementing such a transfer to also include reforms.

Proponents argue that reallocation is a routine measure, enacted numerous times in the past, and is therefore adequate in the current situation. In his testimony, Lorenzen explained that previous reallocations have often been accompanied by reforms, a precedent that's particularly important to follow this time.

After a thorough review of past reallocations, Lorenzen reaches four major conclusions:

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