Medicare at Heart of Budget Fight

Shrinking magnitude of spending for federal program complicates politics.


Published: Sunday, February 24, 2013 at 12:01 a.m.
Last Modified: Monday, February 25, 2013 at 1:30 a.m.

WASHINGTON | In some ways, the partisan standoff over looming budget cuts resembles earlier links in the chain of fiscal battles that began two years ago.

But the politics of one core dispute between Democrats and Republicans — what to do about Medicare — are changing. And some of those changes complicate President Barack Obama's agenda, even as he continues to flex his postelection muscle.

One shift is the shrinking magnitude of the Medicare spending problem — a consequence, at least for now, of the recent slowdown in health care costs. That diminishes the willingness of congressional Democrats, and perhaps the administration too, to accept the sort of Medicare curbs that Obama has indicated that he favors.

Another is a moderation in the public stance of Republican leaders. In recent weeks, they have advocated smaller changes to Medicare than the "premium support" or voucher plan that Mitt Romney advocated and that Obama denounced in the 2012 presidential campaign.

As a result, Obama's ability to deliver a bipartisan compromise on entitlement spending may be waning even as Republicans edge closer to one.

The reduction in Medicare spending levels is the more dramatic change.

In August 2010, the Congressional Budget Office estimated that Medicare would cost $6.5 trillion from 2012 to 2020. A few months later, a deficit reduction panel appointed by Obama called those spending levels unsustainable.

But the budget office's latest projections have pegged Medicare spending over the same period at $6.1 trillion. That $400 billion decline exceeds the $303 billion in savings over that period recommended in 2010 by the deficit reduction commission headed by former Sen. Alan K. Simpson, a Republican, and Erskine B. Bowles, who served as White House chief of staff under President Bill Clinton.

The causes of the decline, which could include the impact of a weak economy as well as adjustments by doctors and hospitals to policy changes in the 2010 health care law, remain unclear. So is its duration.

Even so, observed Harold Ickes, a longtime Democratic strategist and a veteran of Clinton's White House, "it's going to be a hard case to make among Democrats that entitlements should be cut" as long as that trend persists.

Yet no one argues that the deceleration in health costs has resolved the looming fiscal squeeze caused by the aging of the baby boom generation. Among the more optimistic liberal economists, Dean Baker of the Center for Economic and Policy Research argues that the trend, if it continues, will eventually resolve 75 percent of the long-term budget challenge posed by Medicare.

Obama, in calling for a "grand bargain" budget deal with Republicans, has repeatedly invoked the need to curb entitlement spending. And he has said he would consider changes beyond the roughly $300 billion in Medicare spending reductions proposed in last year's budget.

But lately the administration has backed away from the idea of raising Medicare's eligibility age, which Obama entertained in 2011 negotiations with Rep. John A. Boehner, the House speaker. Democratic policy experts say his willingness to bargain beyond existing public proposals may be ebbing.

"It's not clear to me how he goes much further," said Jared Bernstein, a former economic adviser to Vice President Joe Biden. "We have some time to examine the progress we've made and whether we can continue it. There's a little more oxygen in the room."

Such reticence worries Simpson and Bowles, who last week issued a new call for $600 billion in savings from Medicare, Medicaid and other health care programs.

"Any time you have an excuse not to make a cut in Washington, you take it," Bowles said.

That could, in turn, sour prospects for an accord on Medicare just as Republicans shift toward a less confrontational stance.

Like Romney, House Republicans have advocated shifting Medicare from an open-ended commitment to one that offers a fixed amount for each beneficiary. The president and his party have blistered that approach for shifting financial risk from the government to retirees; Bowles, too, calls it "a step too far."

Republicans have shown concern about the political risks by postponing their plan to carry out that idea to spare current beneficiaries and those who are within 10 years of enrolling in Medicare. But lately they have displayed even more caution.

Boehner did not demand premium support in negotiations with Obama over the so-called fiscal deadline late last year. And in a recent speech aimed at improving the Republican Party's image, the House majority leader, Eric Cantor, highlighted a less-controversial way to "modernize Medicare" by combining its separate hospital and doctor services benefits with "reasonable and predictable levels of out-of-pocket expenses."

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