Many Budget Proposals, but Still No Agreement

Because you just can’t get enough of this story … more on the federal budget proposals. Between the NFL lockout and the lockout in the federal government, I’m starting to wonder if we’ve lost our ability to negotiate as a nation.

– Eric

With time running out before the deadline of August 2 to raise the government’s debt ceiling, there appear to be three main plans under discussion.

House GOP’s Cut, Cap and Balance Plan: On Tuesday, the House passed the “cut, cap and balance” bill pushed by Republicans. The Senate will now begin considering it, but it is unlikely to go anywhere in the Democratic-controlled Senate.

For the next 10 years, the bill sets caps on the money available for later lawmakers to spend, limiting future spending to a certain percentage of the gross domestic product (GDP). The bill also requires a reduction of $111 billion in federal spending in fiscal 2012 (and $2.4 trillion over 10 years), exempting defense, Medicare and Social Security from cuts. The bill also requires both houses of Congress to pass a balanced budget amendment. The version of the balanced budget portion of the bill has an escape hatch: a two-thirds vote of Congress can waive the constitutional mandate, while a simple majority can suspend it in the case of a declaration of war.

Gang of Six Plan: This plan, put forward by a bipartisan group of senators, would cut deficits by $3.7 trillion over 10 years. Thought dead two months ago, when Senator Tom Coburn (R-Okla.) pulled out of the group, the plan was released on July 19 and quickly embraced by President Obama. The plan would reduce the deficit by a mixture of spending cuts (74 percent) and new taxes (26 percent). The plan also makes changes to the tax code, lowering personal and corporate tax rates, and eliminating the Alternative Minimum Tax, as well as doing away with many deductions and tax breaks. It directs congressional committees to reduce the deficit by specific levels in their areas of jurisdiction, including in the major entitlement programs such as Medicare and Medicaid. The plan makes specific recommendations that the flawed Medicare physician payment formula be completely overhauled, that the CLASS Act’s long-term insurance program, enacted under healthcare reform, be repealed and that new medical malpractice reforms be enacted.

McConnell/Reid Plan (also called “Plan B”): This plan was put together by Senate Minority Leader Mitch McConnell (R-Ky.) and Senate Majority Leader Harry Reid (D-Nev.). Under the plan, President Obama would have the power to order an increase in the debt limit of up to $2.5 trillion in three installments over the coming year, unless both the House and the Senate voted by two-thirds margins to deny the increase. The debt-limit proposal would be paired with at least $1.5 trillion in spending cuts identified through bipartisan talks that Vice President Biden led in recent weeks. The deal would also create a committee of 12 lawmakers who would be asked to identify trillions of dollars in additional savings. The panel’s recommendations would be fast-tracked to votes in the House and the Senate and would not be subject to amendment, a process similar to the one Congress uses for closing military bases.

Senator McConnell concluded that congressional politics made it impossible to reach a deal over trimming the federal deficit in time to avoid a default. So, he is offering the White House an out, but one that requires President Obama to take responsibility for the politically unpopular step of raising the debt ceiling. The plan requires President Obama to request the largest of the three increases next summer, in the heat of the presidential campaign.

Miscellaneous Proposals: Senator Tom Coburn released a 600-page plan that he says would achieve $9 trillion in deficit savings over the next decade through a combination of far-reaching spending cuts, entitlement reform and increased tax revenue. Coburn noted that “tax expenditures are increases on anyone who does not receive the benefit or can’t hire a lobbyist or special interest group to manipulate the code in their favor.”

President Obama has given Republicans three options: a far-reaching $4 trillion deal that includes taxes and cuts to entitlement programs; a $2 trillion package that would require each side to give only a little; and a much smaller package of up to $1.5 trillion that includes no tax increases and no cuts to entitlement programs. In Obama’s $2 trillion option, tax increases would come from a 35 percent limit on itemized deductions and the elimination of special-interest tax breaks for oil and gas companies, corporate jet owners and producers of ethanol. Obama is also seeking to extend for another year a payroll tax cut enacted last December and possibly extend it to small businesses.

How Do the Various Budgets Affect Social Security and Medicare?

The most likely change affecting Social Security would be to shift how the government calculates the Consumer Price Index (CPI). Economists from both parties argue that the current index over-compensates people for inflation. A different measure, known as the “chained CPI,” has been estimated to save $112 billion over 10 years by reducing the annual increase in benefits by, on average, about .3 percentage points. The effect of the cut would grow over time – someone retiring at age 65 could expect 3.7 percent less in benefits at age 75, 6.5 percent less at age 85 and 9.2 percent less at age 95, according to a Social Security actuary.

Any debt deal will likely involve more Medicare reductions. The House GOP proposal would cut $250 billion from the program, by, among other things, raising the premiums for wealthier retirees, reducing payments for home health aides and raising co-payments for lab services. A major likely savings would be to increase co-payments by limiting popular Medigap policies seniors buy as supplemental insurance plans. The White House wants to shift more of the Medicaid tab to state governments, many of which already struggle with the program’s cost.

President Obama has stated that he is willing to consider the option of increasing the Medicare eligibility age from 65 to 67. But, many Democrats are staunchly opposed to the idea. Such a move may be more feasible once the healthcare reform law is implemented in 2014, when people in their 60s with preexisting conditions should have an easier time finding private coverage.

Changes in the tax-treatment of employer-provided health and retirement benefits seem to be off the table, for now.

New Healthcare Proposals Introduced in Congress

Several new health-related proposals have been introduced in Congress recently.

The Medicare and Medicaid Fighting Fraud and Abuse to Save Taxpayer Dollars (FAST) Act (S. 1251) – This piece of legislation is designed to prevent prescription drug waste, fraud and abuse and to curb improper Medicare and Medicaid payments. The bill would enact stronger penalties for Medicare fraud, require prepayment review of all claims for durable medical equipment and seek to improve data-sharing across all agencies and programs.

The Preserving Access to Life-Saving Medications Act (H.R. 2245) – This bill seeks to amend the federal Food, Drug and Cosmetic Act to provide the Food and Drug Administration (FDA) with improved capacity to prevent drug shortages. The Act requires manufacturers of drugs to give six months notice to the government before discontinuing or interrupting the manufacture of a drug and creates a $10,000 per day penalty for failing to do so.

Home Health Care Planning Improvement Act (H.R. 2267) – This bill amends the Social Security Act to ensure more timely access to home health services for Medicare beneficiaries.

Birth Control Coverage Among Preventive Care Services Proposed for Women

A key provision of the Affordable Care Act required non-grandfathered plans to cover a basic set of preventive health services without co-pays or deductibles. This week an independent panel of doctors and health experts recommended that health plans cover a variety of contraceptives for women without co-pays. The Institute of Medicine (IOM), a branch of the National Academy of Sciences that provides guidance to lawmakers, urged coverage for “the full range of FDA-approved contraceptive methods, sterilization procedures and patient education and counseling.”

While the guidelines are not binding, the panel conducted its year-long review at the request of Health and Human Services Secretary Kathleen Sebelius. The recommendation must be approved by the U.S. Preventive Services Task Force in order for it to apply to non-grandfathered plans. After approval, which has not happened yet, plans would be required to cover birth control for the first plan year that begins one year after the recommendation is approved.

Other preventive services for women that the IOM panel recommended be covered without cost-sharing include: screening for gestational diabetes during pregnancy, human papillomavirus (HPV) testing as part of cervical cancer screening for women over 30, counseling on sexually transmitted infections and counseling to detect and prevent domestic violence. The new law already requires that mammograms for women over age 40 be covered by new health plans without cost-sharing.

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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