President Obama Outlines Deficit Reduction Plan

The following report from Lockton’s legislative update on 4/18 summarizes the proposed budget and deficit reduction plan, paying key attention to changes in 1099 reporting and healthcare reform.

~ Eric

President Obama last week proposed cutting $4 trillion from the federal budget over the next 12 years by cutting defense spending, holding down domestic expenditures and healthcare costs, and increasing tax revenues. The President’s framework calls for the nation’s deficit to be reduced to 2.5% of the total economy by 2015, down from just under 9% today.

The President’s budget calls for saving $340 billion in the Medicare and Medicaid programs over ten years, and $480 billion by 2023. Specifically, he proposed strengthening an independent government panel that can recommend Congress take measures to reduce the rate of growth. Currently, Congress must consider the panel’s recommendation, and if it disagrees, enact policies that achieve equivalent savings. Obama proposes setting a lower target growth rate for Medicare and giving the panel additional tools and enforcement mechanisms to improve quality of care, while reducing costs. The President stopped short, however, of recommending an increase in the Medicare eligibility age.

The President called for pressuring drug companies to lower prices charged under government healthcare programs, and for speeding up the availability of generic drugs. The President also proposed replacing the current complicated Federal matching formulas for Medicaid and the Children’s Health Insurance Program (CHIP). A single matching rate for all program spending would be put in place that rewards States for efficiency and automatically increases if a recession causes enrollment (and state costs) to rise.

Congress Passes Budget Bill for Remainder of 2011 Fiscal Year

In the first of two budget votes last week, Congress passed the hard-fought budget deal that averted a government shutdown. However, more than one-fifth of the $38.5 billion in spending cuts reflected in the budget comes from eliminating funds that never existed, except on paper.

For example, Congress cancelled nearly a hundred large IOUs it had issued to government agencies, but which those agencies never used. The Education Department, for instance, had an IOU for a $560 million program that no longer exists. Congress added up the value of those IOUs and deemed the unspent funds as “cuts.”

Congress also cut budget authority that would not have been used until later years. An example is the elimination of the “Free Choice Voucher” program under healthcare reform. That program was not scheduled to become effective until 2014, but the savings resulting from elimination of the program were counted as a cut to the 2011 budget.

So, in the end, a compromise that was described as cutting $38.5 billion from the federal budget actually cut only approximately $350 million in expected spending during the 2011 fiscal year, according to a Congressional Budget Office (CBO) analysis.

House Passes Ryan Budget Plan for 2012

The House of Representatives passed Rep. Paul Ryan’s (R-WI) 2012 budget plan, a plan that includes privatizing Medicare, by a vote of 235 to 193 on Friday. All House Democrats and four Republicans voted against the plan.

Democrats worry that Ryan’s plan won’t control costs so much as shift them to seniors. The CBO concluded that Ryan’s privatization plan would actually add to the costs of Medicare coverage. In 2030, traditional Medicare insurance, according to CBO estimates, would only cost 60% as much as the private options Ryan’s plan would offer to seniors. But under Ryan’s plan, seniors would pay two-thirds of the cost, while under traditional Medicare they’d pay only 25%.

Ryan’s proposal to turn Medicare into a voucher system is politically risky. In a recent Gallup poll, just 13% of people surveyed favored a complete overhaul of Medicare, while only 18% said they supported major changes in the program. The House vote is expected to be pointless legislatively since Senate Democrats are unlikely to pass the Ryan budget.

President Obama Signs Bill to Repeal Enhanced Form 1099 Reporting Requirements

On Thursday, April 14th, President Obama signed the legislation repealing the enhanced Form 1099 reporting requirements imposed by the healthcare reform law. But for the repeal, beginning in 2012 employers would have had to furnish a Form 1099 to vendors who supplied more than $600 in goods or services to the employer.

Other Changes to Healthcare Reform Introduced in Pending Bills

Both the House and the Senate have introduced legislation that would repeal the CLASS Act, the portion of healthcare reform calling for a federal long-term care insurance program. Both bills have been referred to Committee. Federal actuaries have determined that the CLASS Act program would become insolvent after just a few years.

Rep. Charles Boustany (R-LA) introduced a bill to repeal the more than $60 billion in annual fees on health insurance providers enacted by the healthcare reform bill. Opponents of the tax argue that insurers will simply pass the tax through to consumers, in the price of insurance products. The fees were imposed, however, to help offset the cost of healthcare reform, so any attempt to repeal the fees will likely require Congress to cut $60 billion in spending, either under healthcare reform or under other federal programs.

Janae L. Schaeffer, J.D.
Compliance Services

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About thebenefitblog

Eric is a Producer at Lockton Insurance Brokers, Inc., the world’s largest privately held commercial broker. Eric has over 23 years of experience in the insurance industry and has spent the last 11 years with Lockton. Eric specializes in Health & Welfare Benefits, Retirement Planning, and Executive Benefits. Eric's clients utilize his expertise in the areas of Plan Due Diligence, Transaction Structure, Fiduciary Oversight, Investment Design, Compliance and Vendor negotiation to improve the operational & financial outcome for each client. The Benefit Blog is a place to share that expertise and industry news.
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