The President and the House of Representatives have advanced starkly different paths for the nation with recent proposals to address the federal budget deficit. The President characterizes his plan as a balanced approach with tax increases for higher-income families, as well as savings in defense and domestic spending and provisions to control health care costs and improve efficiency in Medicare and Medicaid. Together, these changes would reduce the federal budget deficit by $1.35 trillion over 12 years relative to current law.1
The budget resolution passed by the House of Representatives is based on a House Budget Committee proposal that would cut the top rate on taxes for individuals and corporations, exempt military spending from cuts, and make deeper cuts in domestic spending. It would also repeal the health insurance expansion provisions of health reform and cap federal budget outlays for Medicare and Medicaid. The plan is estimated to reduce federal spending by $5.8 trillion over 10 years, $4.2 trillion of which would be used to finance tax cuts, leaving $1.65 trillion for deficit reduction.
With these proposals, the nation is beginning a serious debate on addressing the imbalance in projected federal budget revenues and expenditures. Health care is at the heart of this debate. The analysis that follows shows that while both approaches constrain federal spending under Medicare and Medicaid, they differ sharply in how steep cuts would be, how they would be achieved, and what effect they would have.
Contrasting Health Care Budget Proposals
The President's and House of Representatives' proposals have fundamentally different strategies for health insurance coverage for elderly and disabled Medicare beneficiaries, low-income families, and middle-class working families without employer health insurance. The President’s proposal would preserve Medicare and Medicaid benefits, along with the expansions contained in the health reform legislation to cover more low-income individuals under Medicaid, subsidize health insurance premiums for working families, and fill in the current coverage gap (or “doughnut hole”) in Medicare prescription drug coverage. A summary of the President's Health Budget Framework is included in Table 1.
The House proposal would repeal the health reform provisions expanding Medicaid and providing new premium assistance for middle-income working families, restore the doughnut hole in Medicare prescription drug coverage, convert Medicare to a voucher for private health insurance when those now under age 55 qualify for Medicare, replace Medicaid with a block grant to states, and sharply restrict the growth in the federal budgetary commitment to Medicare and Medicaid over time. A summary of the health provisions in the House Budget Resolution is available in Table 2.
While both budget proposals achieve comparable levels of deficit reduction, the President's framework raises taxes on high-income individuals, while the House of Representatives budget resolution cuts taxes. As a result, much of the Medicare and Medicaid savings in the House budget resolution would go to finance tax cuts.
The House resolution also misses the opportunity to use the federal government's leverage as a major purchaser of health care to lower the rising health care costs that are at the center of our budget deficit problem. Rather than addressing the underlying drivers of U.S. health care costs, the House resolution relies on market forces to lower costs. But as discussed in an August 2010 blog post, the health care market is not like the market for other goods and services. Without effective measures to control these costs, such as incentives to reduce hospitalizations, the cuts in Medicare and Medicaid will translate into considerably higher costs for vulnerable low-income, elderly, and disabled individuals as well as working families.
Some specific consequences of the House budget resolution include:
Putting the U.S. on the Path to a High Performance Health System
The budget proposals offered by the President and House present the nation with divergent paths for lowering health care costs and reducing the federal budget deficit as the post–World War II generation reaches retirement. In short, the large reductions in federal health expenditures in the House budget resolution would shift costs onto consumers and other payers, forcing future Medicare beneficiaries to pay more of their own expenses directly out of pocket, requiring states to absorb rising Medicaid costs, and leading to dramatic increases in the number of uninsured. By contrast, the President’s proposal would maintain a federal commitment to affordable coverage for all and attempt to keep spending increases reasonable by creating incentives for physicians and hospitals to be accountable for both patient outcomes and the use of health care resources.
The challenge for all leaders—in government, health care, and the private sector—is to move beyond shifting responsibility for unaffordable care toward developing effective strategies for putting the U.S. on the path to a high-performance health system that yields real value for the monies invested.
The U.S. has the resources and innovative spirit to cope with the challenges ahead, as it has in the past. The health care experiences of other countries and high-performing areas within the U.S. should be carefully examined to identify policies and practices that hold the promise of achieving the triple aims of better health, better patient care experiences, and lower costs.
1 The President's proposal is estimated to reduce the deficit by $4 trillion over 12 years relative to the Office of Management and Budget's adjusted baseline, which is higher than current law baseline due to certain assumptions about future federal outlays and receipts. Estimated deficit reduction is reported here relative to current law baseline to facilitate comparison with the House budget plan.
2 Commonwealth Fund calculation based on Figure 1, Page 22 in CBO letter to the Honorable Paul Ryan, April 5, 2011, available at http://www.cbo.gov/ftpdocs/121xx/doc12128/04-05-Ryan_Letter.pdf.