How Simpson and Bowles Protect the Disadvantaged

Among the principles outlined by former Fiscal Commission co-chairs Senator Al Simpson and Erskine Bowles in their new plan A Bipartisan Path Forward is that a reasonable debt reduction plan must protect the disadvantaged. They argue that while additional spending cuts and reforms of entitlement programs will be necessary as part of a plan to put the budget on a fiscally sustainable course, low income programs should not harmed and entitlement reforms should include protections for vulnerable populations who rely on those programs most.

We must ensure that our nation has a robust, affordable, fair, and sustainable safety net. Benefits should be focused on those who need them the most, and low-income programs should not be cut simply for the sake of deficit reduction. Broad-based entitlement reforms should either include protections for vulnerable populations or be coupled with changes designed to strengthen the safety net for those who rely on it the most.

Importantly, the specific policies in their plan demonstrate that it is possible to meet the principle of protecting low-income and vulnerable populations in developing a comprehensive deficit reduction plan. The plan protects low-income programs by including a number of targeted benefit enhancements and low-income protections to accompany the entitlement reforms in the plan while still improving the solvency of Medicare and Social Security and achieving significant deficit reduction.

• Sequester repeal: The plan repeals most of the sequester, which calls for across-the-board cuts in discretionary spending, which disproportionately affects programs in housing, education, child care, nutrition, and energy assistance. Instead, it has discretionary spending caps which allow appropriators to target cuts where they deem most appropriate.
• Means-tested programs and UI benefits untouched: The plan does not make any direct changes to means-tested programs like Supplemental Security Income, food stamps (SNAP), and cash welfare (TANF). In addition, unemployment insurance is left untouched. The only changes are anti-fraud measures and the chained CPI switch, both of which reflect the intentions of current law rather than a new policy.
• Medicaid benefits untouched: A Bipartisan Path Forward leaves Medicaid alone for the most part.  One exception is a change that phases out the gimmick of states taxing medical providers to pay for Medicaid expansions, which then leads to higher federal government spending.
• Benefit enhancements for the chained CPI: To protect vulnerable populations who would be affected by the chained CPI switch, the plan would provide a flat dollar benefit bump-up to those receiving Social Security, Supplemental Security Income (SSI), and veterans benefits and have been in these programs for 20 years. Within the SSI program, they propose indexing the $20 income disregard and asset limits to inflation measured by the chained CPI.
• Income-related catastrophic protections: The Medicare cost-sharing proposal provides for the first time an income-related out-of-pocket maximum, thus concretely limiting beneficiaries' potential exposure to health care cost-sharing. In addition, the cost-sharing reforms include an income-related deductible, lowering the deductible for lower-income seniors. While the exact level of out-of-pocket caps and reduced deductibles of the proposal would need to be fleshed out to hit the savings target, the plan would seek to hold average out-of-pocket costs constant from year to year and would likely reduce out-of-pocket costs for the poorest and sickest seniors and offer much greater protection from financial risk.
• Medicare buy-in with income-related premiums: The plan's gradual raising of the Medicare eligibility age is combined with a Medicare buy-in to ensure that low and moderate income seniors affected by the increase in Medicare eligibility age have access to affordable health insurance through Medicare. As we discussed on Tuesday, Simpson and Bowles would offer seniors affected by the age increase the option to buy into Medicare with an income-related premium. The biggest assistance would be for those below 100 percent of poverty who would receive a full subsidy for their Medicare premium. Seniors between 100 and 400 percent of poverty would pay an income-related premium similar to the way the subsidies work in the Affordable Care Act’s health insurance exchanges.
• Strengthening Pell Grants: A Bipartisan Path Forward eliminates the Pell Grant funding shortfall through savings from reforms of provisions that do not target education resources nearly as well. Without new funding to fix the shortfall, Congress would be forced to either reduce the Pell grant award amount and eligibility for assistance or cut other discretionary programs more deeply to cover the shortfall in future appropriations bills.
• Progressive tax reform: The proposal calls for tax reform that makes the code at least as, if not more, progressive. The original Simpson-Bowles Illustrative plan, which is one of the models the proposal cites, included a small tax cut for the bottom quintile.
• Social Security protections: The original Simpson-Bowles plan would have increased benefits for low-income workers and reduced poverty among seniors by making the benefit formula more progressive, including a hardship exemption from their proposal to index the retirement age to longevity, establishing a new minimum benefit of 125 percent of poverty for those with 25 years of work, and establishing a flat dollar bump up for beneficiaries who have received benefits for twenty years and are at greater risk of poverty. Simpson and Bowles now recommend further strengthening the Commission’s low-income protections to eliminate any benefit reduction in the bottom quintile by increasing the bottom replacement factor from 90 percent to 95 percent and phasing up the minimum benefit faster for those with less work history.
• Fixing the fiscal situation: The Bipartisan Path Forward puts the debt on a sustainable path over the medium and long term, thus precluding the possibility of a debt crisis. Such a debt crisis would likely involve severe and immediate cuts, and low-income programs would likely have to be a part of those cuts. Making targeted changes that protect the most vulnerable while putting the debt on a downward path avoids this possibility.

As the reforms in their plan show, Simpson and Bowles follow the principle of protecting the disadvantaged by including numerous protections for low-income individuals who depend the most on certain entitlement programs. Any responsible plan for deficit reduction must include significant spending cuts and reforms to control the growth of entitlement programs. Simpson and Bowles have made a valuable contribution to the debate by demonstrating that it is possible to slow the growth of entitlement programs through smart, targeted reforms that preserve the safety net and protect low-income individuals and other vulnerable beneficiaries.