Experts: We Must Reform Entitlements

Democrats: We’d rather not

February 29, 2012

Members of the House Budget Committee heard revealing testimony Tuesday from senior administrators of Medicare, Medicaid, and Social Security—federal entitlements that face certain bankruptcy unless Congress acts soon to restructure the programs.

The remarks from Richard Foster, chief actuary for Medicare and Medicaid, and Stephen C. Goss, chief actuary for the Social Security Administration, came just weeks after President Obama unveiled his budget proposal for fiscal year 2013, which left spending on federal entitlements essentially unchanged.

Treasury Sec. Timothy Geithner has repeatedly warned of the consequences of failing to reform the country’s large entitlement programs.

"Even if Congress were to enact [the president’s] budget," Geithner told members of the Senate budget committee earlier this month, "we would still be left with—in the outer decades as millions of Americans retire—what are still unsustainable commitments in Medicare and Medicaid."

Chief actuary Foster echoed this concern on Tuesday, offering support for the type of Medicare reform championed by House Budget Committee chairman Paul Ryan (R., Wis.), Sen. Ron Wyden (D., Ore.), and a host of nonpartisan policy groups, while warning of restricted access to care under the president’s healthcare law.

Ryan asked Foster if he thought free-market reforms such as "competitive bidding" could successfully drive down healthcare costs.

RYAN: As you may know, I’ve been working across the aisle with a member of the Oregon delegation from the Senate on a premium support plan that uses competitive bidding to help determine the contribution. Competitive bidding we’ve seen has worked well in Medicare Part D and Medicare Advantage. I’d like to get your thoughts on choice and competition as it relates to these previous successful reform plans. Given what we’ve seen in these aspects of Medicare, do you believe that competitive bidding is a process that can be successfully applied Medicare-wide?

FOSTER: Yes, I think it can. Obviously, it would represent a large change from the status quo, but I think it could work. We’ve seen the signs of this—you mentioned the Part D prescription drug program, for example, where the different drug plans compete against each other on the quality of their benefit package and the premium level. And we’ve seen—every year since Part D started—a migration of beneficiaries to more efficient plans with lower premiums. So that can help. We’ve also seen for durable medical equipment that competitive bidding, in this particular area of Fee-For-Service Medicare, reduced prices that we had to pay by 40 percent.

RYAN: By 40 percent?

FOSTER: Forty percent, that’s right.

RYAN: Those are the kinds of cost savings we’re going to have to achieve if want to make good on the promise of the Medicare guarantee. This should not be a partisan issue. Competitive bidding is something Alice Rivlin has been a champion of, Ron Wyden has been talking about, the Bipartisan Policy Center, and more. There is a lot of data out there that competitive bidding when applied Medicare-wide can achieve the benefit of keeping these benefits going while attacking the root cause of cost growth.

Foster made similar statements at a January 2011 budget hearing. He said that while the Medicare reform plan proposed by Ryan "has [the] potential" to successfully drive down healthcare costs, he was "less confident" that the same savings could be achieved under the president’s healthcare law.

On Social Security, chief actuary Goss warned of the steep cut in benefit payments that awaits seniors and disabled citizens if lawmakers fail to restructure the program.

Goss explained that if nothing is done to reform the program, Social Security beneficiaries would see an automatic 23 percent cut in benefits starting in 2036.

RYAN: Given that we have this abrupt 23 percent cut that occurs in law—current law—is it not wise so start reforming now, sooner, so that the distribution of the change is spread more broadly and evenly across income cohorts? Let me ask it this way: does that abrupt 23 percent cut hit current senior cohorts? A person who is turning 62, or 65 today—that affects them as well, correct?

GOSS: It certainly would. They would be at an older age at that time but clearly it would affect them. That is assuming that we wait and do absolutely nothing until that point.

RYAN: So if one provides reforms soon, could you not prevent these kinds of effects from hitting those current cohorts? Could you not phase reforms in gradually that prevent that 23 percent cut from happening so it doesn’t affect people who are currently in or near retirement? Could you structure reforms that prevent that from happening if you act sooner?

GOSS: Absolutely. We have a number of proposals—including yours, Chairman Ryan—and many other proposals that would take exactly that approach. Our trustees and everybody who speaks on this has opined extensively about the value of acting sooner rather than later, so that we can have gradual changes phased in and we have more options if we act relatively soon.

Rep. Earl Blumenauer (D., Ore.) claimed that no one in Congress has suggested doing nothing to reform Social Security.

"I don’t know anybody in Congress—and there are some kooky people around here—but I don’t know anybody that says: ‘You know we’re going to be on automatic pilot, wait 20 or 30 years, you know, wait till 2036 [before fixing Social Security],’" Blumenauer said.

However, the two most senior Democrats in Congress, Senate Majority Leader Harry Reid (D., Nev.) and House Minority Leader Nancy Pelosi (D., Calif.), have suggested just that course of action.

"Let’s worry about Social Security when it’s a problem," Reid told a group of activists gathered at the Capitol in October 2011. "Today, it is not a problem."

"Two decades from now, I’m willing to take a look at it, but I’m not willing to take a look at it right now," he told MSNBC’s Lawrence O’Donnell last March.

Pelosi has even suggested that nothing will ever need to be done to reform Social Security.

When pressed by House Democrats in 2005 as to when she would offer a competing plan to President George W. Bush’s proposal to reform the program, Pelosi reportedly responded: "Never. Is never good enough for you?"

Pelosi seems to have a similar position on Medicare reform. In a May 2011 interview with blogger Greg Sargent, Pelosi said, "We have a plan. It’s called Medicare."