CNN is reporting that the “Fiscal cliff deal is down to wrangling over the details.” While others in the media continue to say that talks are stalled, everything I know about both the economics and the politics of the situation tells me that CNN is right.
At 4:30 this afternoon, CNN updated its story: “Both sides agree the wealthy will pay more, so now fiscal cliff talks come down to how much Republicans can wring out of the White House in return for giving in on taxes.
“To President Barack Obama, it’s all about first locking in additional revenue from raising taxes on high-income owners, an outcome the GOP has long rejected.”
President Obama had made it clear that negotiations over government spending on safety nets such as Medicare wouldn’t begin until Republicans accepted a higher marginal tax rate for individuals earning over $200,000 and couples earning over $250,000.
The president dug in, and, according to CNN, he has won round one.
“Retiring Republican Rep. Steve LaTourette of Ohio told CNN on Thursday that he sensed a shift in the House GOP approach during a conference meeting the day before.
“A GOP source told CNN that talks between staff members on both sides resumed Thursday for the first time this week, after Obama and Boehner spoke by phone the day before.”
A Two-Step Approach
It is not clear whether negotiations over so-called “entitlements” will be concluded before the end of the year. But CNN, reports
“All signs point toward a two-step approach sought by newly re-elected Obama — an initial agreement that would extend lower tax rates for income up to $250,000 for families, while letting rates return to higher levels from the Clinton era on income above that threshold.” That agreement on taxes will be signed and sealed before the end of the year.
“Even conservatives such as Oklahoma Sen. Tom Coburn and Louisiana Gov. Bobby Jindal acknowledge the obvious — taxes on the wealthy are going up despite opposition by Republicans.
“‘Whatever deal is reached is going to contain elements that are detrimental to our economy,’ Jindal wrote Thursday in an opinion piece published by Politico. ‘Elections have consequences, and the country is going to feel those consequences soon.’”
It is possible that President Obama could still agree to lift the income bar above $250,000 and extend tax cuts for families earning less than $400,000 or $500,000– but I doubt he will. It’s difficult to argue that Americans perched on the top two steps of a 100-step income ladder cannot afford a hike in their tax rate that applies only to what they earn above and beyond $250,000.
CNN reports that the President is not wavering: “Obama demands that the House immediately pass a measure already approved by the Senate to extend tax cuts from 2001 and 2003 on income up to $250,000 for families.”
He contends that both Democrats and Republicans agree that the 98% of American families making less than $250,000 a year should avoid a tax hike when the lower rates from the Bush administration expire on December 31. He is calling for the House to guarantee that outcome by passing the Senate measure now.
Once that happens, Obama and Democratic leaders promise, they will work out compromises on spending cuts sought by Republicans to reduce the deficit, such as reforms to Medicare and Medicaid .
Spending on Safety Nets: President Obama in the Driver’s Seat
President Obama began this negotiation with, by far, the stronger hand. A majority Americans back the president on the three major issues at stake: they believe that tax cuts for the wealthiest 2% should not be extended, they are opposed to lifting the eligibility age for Medicare to 67, and they are opposed to slicing Social Security benefits.
I very much doubt that President Obama will agree to conservative demands that we trim cost-of-living adjustments for retirees living on Social Security. Those “COLA” adjustments already are paper-thin. And while overall inflation is low, prices for the things that a senior must buy—food, health care and utilities have been rising.
I also don’t think the president will budge on asking Americans to wait until they are 67 before apply for Medicare—in part for the reasons I outline in the post below, in part because he doesn’t have to. He may have considered conceding this point in the past, but at that time he was in a much weaker position. Today his approval rating is at a three-year high.
By contrast, the GOP is in disarray. It’s famed “party discipline” is crumbling. This morning, Bloomberg reported that House Speaker John “Boehner’s once-unified coalition against income tax rate increases is showing signs of fracture.” l
“More House Republicans have begun to endorse Oklahoma Republican Tom Cole’s call to extend all tax cuts for middle-class earners. Representative Kay Granger of Texas called it just the right thing to do. . . . Florida Representative Dennis Ross, a freshman Republican, said he wouldn’t rule out voting for Senate-passed legislation to extend only the middle-class tax cuts.”
Republican U.S. Senator Jim DeMint’s announcement that he is leaving Congress to head the conservative Heritage Foundation is another sign that small-government conservatives within the Republican party are losing power.
At the Foundation, DeMint’s reach will be limited: he will be preaching to the already-converted. Or as LOLGOP put it earlier today, ”He’s going home to filibuster the family.”
DeMint’s departure also “coincides with efforts in the House to crack down on the anti-tax Tea Party wing of the Republican Party.” Earlier this week, four Republicans who opposed Boehner were removed from their committee assignments—including two first-term Republican Tea Party warriors, Tim Huelskamp of Kansas and Justin Amash of Michigan, who were dropped from the powerful budget committee.
Meanwhile, in the Senate, Elizabeth Warren is winning a seat on the banking committee. The pessimists who predicted that “nothing will change” in Washington following President Obama’s re-election were wrong. We’re now seeing a much stronger chief executive. At last, he knows that he doesn’t have to negotiate with himself; he is in a position to lead progressives in Congress. And he will be working with a significantly more liberal Senate. Granted, Republicans will hold the majority of House seats, but it’s clear that some rank-and-file Republicans are no longer terrified of party leadership. They will be willing to talk across the aisle.
The Fiscal Cliff—Merely a Metaphor
Republicans now recognize that President Obama is not afraid of the fiscal cliff.
This morning, on NBC’s “Today” program, former Wyoming Senator Alan Simpson,” the Republican co-chairman of the president’s 2010 deficit commission, conceded that the odds are “probably pretty real” that Obama is prepared to take the U.S. over the cliff if taxes on the wealthy aren’t raised.”
Obama realizes that if we are going to fight the recession, stimulate the economy, and create jobs, the government we need those revenues.
Moreover, the president knows that if Democrats and Republicans don’t reach an agreement by January 1, the economy will not crash on January 2. The “fiscal cliff” is merely a metaphor. Wall Street knows this: despite dire predictions, both the stock and bond markets are holding up pretty well.
Where the President Might Cut Medicare Spending
Nevertheless Obama will reduce government spending where he can. We cannot afford to squander money, and there are places where he could rein Medicare spending.
In November, the Campaign for American Progress (CAP) released a “Senior Protection Plan” which proves that it is possible to save more than of $385 billion over 10 years–without inflicting pain on Medicare beneficiaries. Over the long term, the plan would do what we most need to do–bend the curve of Medicare inflation.
No doubt, President Obama has read this report: Peter Orszag and Zeke Emanuel, two of his most trusted healthcare advisers during his first term, were part of the group who wrote it.
Here are some highlights from CAP’s proposals:
Ask Companies that Sell Medical Devices and Supplies to Medicare and Medicaid to Submit Competitive Bids
As I have reported in the past on HealthBeat, Medicare now over- pays for many medical devices, lab tests, advanced imaging services and medical supplies.
In 2011 Medicare began competitive bidding for durable medical equipment, such as hospital beds and wheelchairs, and succeeded in reducing Medicare’s outlays in this area by more than 42 percent. The Affordable Care Act requires Medicare to expand competitive bidding for durable medical equipment, prosthetics, orthotics, and supplies to all regions of the country by 2016
CAP would go further, moving up the date for nationwide competitive bidding to 2014.
The Patient Protection Plan also would “extend competitive bidding by 2015 to medical devices, laboratory tests, advanced imaging services, and all other health care products.”
CAP notes that “competitive bidding for medical devices in particular would produce substantial savings. The Government Accountability Office found that prices for cardiac implantable medical devices vary substantially, by several thousand dollars.”
In addition, CAP recommends extending competitively-bid prices to Medicaid and all other government health programs.
Below, estimated savings
|Nondurable medical products||
|Durable medical equipment nationwide by 2014||
|Clinical laboratory services||
|Durable medical equipment for Medicaid||
|Total estimated savings||
Apply Competitive Bidding to Medicare Advantage
Instead of using spending under traditional Medicare as the benchmark for bids that private sector Medicare Advantage insurers submit, CAP suggests that Medicare base the benchmark for private plans on their average bid by 2014. Such competition among private plans would not undermine or erode traditional Medicare. Estimated savings: $10 billion
Require price transparency for medical devices
“Many hospitals cannot obtain the best prices for medical devices partly because a lack of price transparency inhibits competition. The Government Accountability Office found that device manufacturers often require hospitals to include confidentiality clauses in contracts that prohibit them from sharing price information. These clauses should be prohibited.”
No Estimate of Savings
Promote shared decision-making in Medicare
Shared decision-making uses patient decision aids to help patients understand their treatment options, and the the risks and benefits of each option. They can then make a “informed choice” about which is best for them. As CAP explains: “Studies have shown that patient decision aids can reduce the use of more invasive treatment options without harming health outcomes.50 The most recent study found that patient decision aids reduced hip replacement surgeries by 26 percent, knee replacement surgeries by 38 percent, and health care costs by 12 percent to 21 percent.”
Estimated Savings: $3.8 Billion
Extend Medicaid drug rebates to low-income Medicare beneficiaries
Medicare is paying too much for drugs—far more than the governments of other developed countries that receive discounts.
Today, CAP observes, “drug manufacturers pay rebates for drugs provided to Medicaid beneficiaries, resulting in significant price discounts. Before Congress created the prescription drug program under Medicare Part D” (which was a gift to the pharmaceutical industry), “drug manufacturers paid rebates for drugs provided to beneficiaries who are eligible for both Medicare and Medicaid—known as ‘dual eligibles.’
“While Medicare prescription drug plans negotiate rebates with manufacturers, these rebates are substantially lower than Medicaid rebates.” Insurers and drug-makers make “deals” that are not always in the best interest of Medicare. “For selected brand-name drugs, the Office of Inspector General found that rebates reduce Medicaid spending by 45 percent, but reduce Medicare Part D spending by only 19 percent.”
As a result, shifting dual eligibles’ drug coverage from Medicaid to Medicare has produced an enormous windfall to drug manufacturers. Medicaid rebates should be extended to brand-name drugs purchased by low-income Medicare beneficiaries.
Estimated savings: $137.4 billion
These are just a few of the most promising ideas in the “Senior Protection Plan.”
In the future, I’ll write about other proposals.
What is clear is that Medicare can squeeze more waste out of our money-driven health care system, without rationing care, or shifting costs to seniors.