In February of 2010, President Obama issued an executive order creating a commission to study the debt crisis in the US and offer a proposal to solve the problem. The committee formed from that order had 18 members, some were appointed by the President, and some were selected from Congress. The President appointed two Republicans and five Democrats. Among those people were two co-chairs: former Senator Alan Simpson and former White House Chief of Staff Erskine Bowles. This has led to the committee name of Simpson-Bowles.
Three Republican Senators were chosen along with three Democrats. The same numbers were chosen from the House. The committee divided itself up into three working groups with each member assigned to two groups. These groups included one to study tax reform, one to study discretionary spending, and one to study mandatory spending.
On November 1, 2010 the committee submitted its final report making recommendations on discretionary spending, tax reform, health care savings, social security, and other mandatory programs. The plan needed a super-majority to be officially supported by the committee, but on December 3, 2010 if received only 11 of the 14 votes needed.
The committee made ten recommendations on discretionary spending. Among these suggestions was a cap on discretionary spending that would limit 2012 to 2011 levels and limit spending in 2013 at 2008 levels. Beyond that, spending growth would be limited to half of inflation until 2020. A wall would be established between defense and non-defense spending and equal cuts would be required from each category. A 60 vote majority in the Senate would be required to spend beyond that amount.
In addition to these limits, a separate category would be created for overseas contingency operations (oco), which were formally referred to as wars, and the President would be held at limits on that spending. Emergency spending for natural disasters would also be reduced by returned to a definition of disaster more in line with traditional definitions.
A 15 cent per gallon gasoline tax would be established to fund transportation and spending in that category would be limited to the amount in the trust fund and prohibited from deficit spending. A number of measures would also be taken to remove waste and redundancy in the federal bureaucracy.
A number of restrictions were also to be placed on government spending. These restrictions included ending earmarks, cutting the congressional and white house staffing budget by 15%, and a three year freeze on congressional pay and pay for DOD and civilian federal workers.
The size of the federal government as a whole was also to be reduce through attrition and hiring slow downs. Travel, printing, and vehicle budgets were also to be reduced, and excess federal property was to be sold off.
The Simpson-Bowles commission had as one of their goals to simplify the tax system. To accomplish this task, they proposed eliminating all expenditures and lowering the overall rates. After that was accomplished, the President and Congress could decide what deductions to add back into the tax code and then raise the rates accordingly to ensure that there is no reduction in tax collections. The committee recommended adding back in the child tax credit, the mortgage deduction credit, health insurance, charitable giving, and retirement savings.
The committee assumed that the Bush tax cuts would be extended for lower earners, but would be allowed to expire for the two highest brackets. All brackets would be lowered with the removal of deductions and raised as shown below for each deduction added back into the tax code. After the simplification, there would be only three brackets of 12%, 22%, and 28% and the corporate rate would be lowered to 28%.
In addition to these items, the committee recommended removing all deductions from the corporate tax code and transitioning to a territorial tax system. Under a territorial system, income earned by foreign subsidiaries and branch operations (e.g., a foreign-owned company with a subsidiary operating in the United States) is exempt from their country’s domestic corporate income tax. Therefore, under a territorial system, most or all of the foreign profits are not subject to domestic tax.
The Simpson-Bowles commission proposed sweeping changes to the Social Security system to move it from a system that theoretically returns investments to workers, to one that allocates funds to specific groups of people. To accomplish this, the committee recommended changes to the bend points, and the creation of several new facets of the program dealing with long term social security recipients and manual laborers.
The amount of money a person receives from social security is determined by a percentage of the amount of money they earned at their retirement age. In 2012, a person received from social security 90% of the money they paid into the system up to $767 of their indexed monthly earnings, 32% of their earnings between $767 and $4,624, and 15% for amounts over $4,624. These amounts and percentages are often referred to as bend points.
The committee proposed adding a fourth bracket to the bend points, increasing the maximum contribution limit, and lowering the amount that wealthier recipients received from the system. These brackets are summarized in the table below, and these brackets would be phased in by 2050.
A number of provisions were added to assist low income workers and long term social security recipients. The committee called for a minimum benefit for low income workers of 125% of the poverty level, and an increase in benefits once a person had been on social security for 20 years to offset the likely attrition of lifetime savings.
The Normal Retirement Age (NRA) would be raised to 67 in 2027 under current law increased to 68 by about 2050, and 69 by about 2075. The Early Eligibility Age (EEA ) would be raised to 63 and 64 in lock step. Along with this increase would be a plan to allow workers to claim half their benefits at 62 and then the other half would kick in at a later age. This would allow manual laborers to work less later in life.
In addition to these items, the Cost of Living would be linked to a more appropriate inflation metric, and newly hired state and local workers would be required to join the social security system.
The committee recommendations on health care are primarily related to Medicare and Medicaid. The largest savings recommendation is a reform of cost-sharing rules. Currently, Medicare beneficiaries must navigate a hodge-podge of premiums, deductibles, and copays that the committee states offers neither spending predictability nor protection from catastrophic financial risk. The committee believes that because cost-sharing for most medical services is low, the benefit structure encourages over-utilization of health care. In place of the current structure, the Commission recommends establishing a single combined annual deductible of $550 for Part A (hospital) and Part B (medical care), along with 20 percent uniform coinsurance on health spending above the deductible. Catastrophic protection for seniors would also be provided by reducing the coinsurance rate to 5 percent after costs exceed $5,500 and capping total cost sharing at $7,500.
A second recommendation was to reduced reimbursements to hospitals for training. Currently, Medicare provides supplemental funding to hospitals with teaching programs for costs related to residents receiving graduate medical education (GME) and indirect costs (IME). The Commission recommended bringing these payments in line with the costs of medical education by limiting hospitals’ direct GME payments to 120 percent of the national average salary paid to residents in 2010 and updated annually thereafter by chained CPI and by reducing the IME adjustment from 5.5 percent to 2.2 percent, which the Medicare Payment Advisory Commission has estimated would more accurately reflect indirect costs.
For prescription drugs, the committee recommended a change to rebate policies. Drug companies are required to provide substantial rebates for prescription drugs purchased by Medicaid beneficiaries. The committee recommend extending these rebates to Medicaid beneficiaries who are also eligible for Medicare (individuals known as “dual eligibles”) and who receive prescription drug coverage through the Medicare Part D program.
The committee also recommended changes to supplemental insurance programs. The ability of Medicare cost-sharing to control costs is limited by the purchase of supplemental private insurance plans (Medigap plans) that piggyback on Medicare. Medigap plans cover much of the cost-sharing that could otherwise constrain over-utilization of care and reduce overall spending. The proposed change would prohibit Medigap plans from covering the first $500 of an enrollee’s cost-sharing liabilities and limit coverage to 50 percent of the next $5,000 in Medicare cost-sharing. The committee also recommend similar treatment of TRICARE for Life, the Medigap policy for military retirees, which would save money both for that program and for Medicare, as well as similar treatment for federal retirees and for private employer-covered retirees.
A number of changes were also proposed dealing with how the government pays for Medicare and Medicaid. Currently, Medicare reimburses hospitals and other providers for unpaid deductibles and copays owed by beneficiaries. The committee recommended gradually putting an end to this practice, which is not mirrored in the private sector. Many states finance a portion of their Medicaid spending by imposing taxes on the very same health care providers who are paid by the Medicaid program, increasing payments to those providers by the same amount and then using that additional “spending” to increase their federal match. The committee recommend restricting and eventually eliminating this practice.
The committee also recommended establishing presumptive eligibility criteria for up to 10 states over the next decade for a state Medicare waiver. These eligible states would be required to proactively seek out the waiver and to meet certain objective threshold criteria, including: improved quality, efficiency, and cost of care; and not increasing the uninsured population. Applications would be evaluated and overseen by the Medicaid Center for Innovation.
Additional recommendations included malpractice reform for Medicare and Medcaid, giving Medicaid full responsibility for those using both Medicare and Medicaid, and increasing government authority to reduce fraud.
Other Mandatory Policies
The Simpson-Bowles Commitee also made a number of suggestions for other areas. These suggestions included reviewing and reforming federal retirement programs, reducing agriculture spending, eliminating in-school subsidies for student loan programs, eliminating payments to states for abandoned mines, and other areas.
|Final Report - The Moment of Truth|
On February 20, 2010 President Obama issued an executive order creating the national commission of fiscal responsibility and reform. The order outlines the number of members and outlines the mission of the commission as proposing methods to balance the national budget by 2015.
The White House Office of the Press Secretary
For Immediate Release February 18, 2010
Executive Order -- National Commission on Fiscal Responsibility and Reform
By the authority vested in me as President by the Constitution and the laws of the United States of America, it is hereby ordered as follows:
Section 1. Establishment. There is established within the Executive Office of the President the National Commission on Fiscal Responsibility and Reform (Commission).
Sec. 2. Membership. The Commission shall be composed of 18 members who shall be selected as follows:
(a) six members appointed by the President, not more than four of whom shall be from the same political party;
(b) three members selected by the Majority Leader of the Senate, all of whom shall be current Members of the Senate;
(c) three members selected by the Speaker of the House of Representatives, all of whom shall be current Members of the House of Representatives;
(d) three members selected by the Minority Leader of the Senate, all of whom shall be current Members of the Senate; and
(e) three members selected by the Minority Leader of the House of Representatives, all of whom shall be current Members of the House of Representatives.
Sec. 3. Co-Chairs. From among his appointees, the President shall designate two members, who shall not be of the same political party, to serve as Co-Chairs of the Commission.
Sec. 4. Mission. The Commission is charged with identifying policies to improve the fiscal situation in the medium term and to achieve fiscal sustainability over the long run. Specifically, the Commission shall propose recommendations designed to balance the budget, excluding interest payments on the debt, by 2015. This result is projected to stabilize the debt-to-GDP ratio at an acceptable level once the economy recovers. The magnitude and timing of the policy measures necessary to achieve this goal are subject to considerable uncertainty and will depend on the evolution of the economy. In addition, the Commission shall propose recommendations that meaningfully improve the long-run fiscal outlook, including changes to address the growth of entitlement spending and the gap between the projected revenues and expenditures of the Federal Government.
Sec. 5. Reports.
(a) No later than December 1, 2010, the Commission shall vote on the approval of a final report containing a set of recommendations to achieve the mission set forth in section 4 of this order.
(b) The issuance of a final report of the Commission shall require the approval of not less than 14 of the 18 members of the Commission.
Sec. 6. Administration.
(a) Members of the Commission shall serve without any additional compensation, but shall be allowed travel expenses, including per diem in lieu of subsistence, as authorized by law for persons serving intermittently in Government service (5 U.S.C. 5701-5707), consistent with the availability of funds.
(b) The Commission shall have a staff headed by an Executive Director.
Sec. 7. General.
(a) The Commission shall terminate 30 days after submitting its final report.
(b) Nothing in this order shall be construed to impair or otherwise affect:
(i) authority granted by law to an executive department, agency, or the head thereof; or
(ii) functions of the Director of the Office of Management and Budget relating to budgetary, administrative, or legislative proposals.
(c) This order is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person.
THE WHITE HOUSE,
February 18, 2010.
As per the executive order, the Commission included 18 members and one executive director appointed by the president. Six members came from the U.S. House of Representatives and six members of the U.S. Senate.
|President's Appointements ||Alan Simpson (co-chair; fmr. U.S. Senator) |
Dave M. Cote (Honeywell International)
|Erskine Bowles (co-chair; fmr. White House Chief of Staff) |
Andy Stern (fmr. president of SEIU)
Alice Rivlin (fmr. director CBO and OMB and Fed vice chair)
Ann M. Fudge (fmr. CEO Young & Rubicam Brands)
Bruce Reed (fmr. Chief Domestic Policy Adviser to President Clinton), executive director of Commission
|House||Rep. Paul Ryan (R-Wisconsin) |
Rep. Jeb Hensarling (R-Texas)
Rep. Dave Camp (R-Michigan)
|Rep. John Spratt (D-South Carolina) |
Rep. Xavier Becerra (D-California)
Rep. Jan Schakowsky (D-Illinois)
|Senate||Sen. Judd Gregg (R-New Hampshire) |
Sen. Tom Coburn (R-Oklahoma)
Sen. Mike Crapo (R-Idaho)
|Sen. Richard Durbin (D-Illinois) |
Sen. Max Baucus (D-Montana)
Sen. Kent Conrad (D-North Dakota)
The committee consisted of three working groups who were created to target discretionary spending, mandatory spending, and tax policy.
Defining the Problem
The commission report states that there is a looming fiscal crisis in the US. It states that the current deficit and debt as a percentge of GDP is too high and is not sustainable. It projects that as the baby boomers retire and health care costs continue to grow, by 2025 revenue will be able to finance only interest payments, Medicare, Medicaid, and Social Security. Every other federal government activity – from national defense and homeland security to transportation and energy – will have to be paid for with borrowed money. Debt held by the public will outstrip the entire American economy, growing to as much as 185 percent of GDP by 2035. Interest on the debt could rise to nearly $1 trillion by 2020.
The commission lists a set of guiding principles that it plans to follow in developing the proposed solution. That section is shown below:
Our Guiding Principles and Values
In establishing this Commission, the President gave us a two-part mission: to bring the budget into primary balance (balance excluding interest costs) in 2015, and to meaningfully improve the long-run fiscal outlook. Our recommendations accomplish both of these goals, while keeping the following core principles in mind:
We all have a patriotic duty to make America better off tomorrow than it is today. Americans are counting on us to pull together, not pull apart, to put politics aside and do the right thing for future generations. Our country’s economic and national security depend on us putting our fiscal house in order.
Don’t disrupt the fragile economic recovery. We need a comprehensive plan now to reduce the debt over the long term. But budget cuts should start gradually so they don’t interfere with the ongoing economic recovery. Growth is essential to restoring fiscal strength and balance.
Cut and invest to promote economic growth and keep America competitive. We should cut red tape and unproductive government spending that hinders job creation and growth. At the same time, we must invest in education, infrastructure, and high-value research and development to help our economy grow, keep us globally competitive, and make it easier for businesses to create jobs.
Protect the truly disadvantaged. We must ensure that our nation has a robust, affordable, fair, and sustainable safety net. Benefits should be focused on those who need them the most.
Cut spending we cannot afford – no exceptions. We must end redundant, wasteful, and ineffective federal spending, wherever we find it. We should cut all excess spending – including defense, domestic programs, entitlement spending, and spending in the tax code.
Demand productivity and effectiveness from Washington. We must use fiscal restraint to promote reforms and efficiencies that force government to produce better results and save money. We should insist on consistent productivity growth in our government.
Reform and simplify the tax code. The tax code is rife with inefficiencies, loopholes, incentives, tax earmarks, and baffling complexity. We need to lower tax rates, broaden the base, simplify the tax code, and bring down the deficit. We need to reform the corporate tax system to make America the best place to start and grow a business and create jobs.
Don’t make promises we can’t keep. Our country has tough choices to make. We need to be willing to tell Americans the truth: We cannot afford to continue spending more than we take in, and we cannot continue to make promises we know full well we cannot keep.
The problem is real, and the solution will be painful. We must stabilize and then reduce the national debt, or we could spend $1 trillion a year in interest alone by 2020. There is no easy way out of our debt problem, so everything must be on the table. A sensible, realistic plan requires shared sacrifice – and Washington must lead the way and tighten its belt.
Keep America sound over the long run. We need to implement policies today to ensure that future generations have retirement security, affordable health care, and financial freedom. To do that, we must make Social Security solvent and sound, reduce the long-term growth of health care spending, and tackle the nation’s overwhelming debt burden.
RECOMMENDATION 1.1: CAP DISCRETIONARY SPENDING THROUGH 2020. Hold spending in 2012 equal to or lower than spending in 2011, and return spending to pre-crisis 2008 levels in real terms in 2013. Limit future spending growth to half the projected inflation rate through 2020.
RECOMMENDATION 1.2: CUT BOTH SECURITY AND NON-SECURITY SPENDING. Establish firewall between the two categories through 2015, and require equal percentage cuts from both sides.
RECOMMENDATION 1.3: ENFORCE CAPS THROUGH TWO MECHANISMS -- POINT OF ORDER AND ABATEMENT. Require a separate non-amendable vote in House and 60-vote point of order in Senate to spend above the caps. If caps are exceeded, impose across-the-board abatement by the amount appropriations exceed the caps.
RECOMMENDATION 1.4: REQUIRE THE PRESIDENT TO PROPOSE ANNUAL LIMITS FOR WAR SPENDING. Create a separate category for Overseas Contingency Operations (OCO).
RECOMMENDATION 1.5: ESTABLISH A DISASTER FUND TO BUDGET HONESTLY FOR CATASTROPHES.
RECOMMENDATION 1.6: STOP THE ABUSE OF EMERGENCY SPENDING.
RECOMMENDATION 1.7: FULLY FUND THE TRANSPORTATION TRUST FUND INSTEAD OF RELYING ON DEFICIT SPENDING. Dedicate a 15-cent per gallon increase in the gas tax to transportation funding, and limit spending if necessary to match the revenues the trust fund collects each year.
RECOMMENDATION 1.8: UNLEASH AGENCIES TO BEGIN IDENTIFYING SAVINGS.
RECOMMENDATION 1.9: ESTABLISH CUT-AND-INVEST COMMITTEE TO CUT LOW-PRIORITY SPENDING, INCREASE HIGH-PRIORITY INVESTMENT, AND CONSOLIDATE DUPLICATIVE FEDERAL PROGRAMS.
RECOMMENDATION 1.10: ADOPT IMMEDIATE REFORMS TO REDUCE SPENDING AND MAKE THE FEDERAL GOVERNMENT MORE EFFICIENT.
1.10.1 Reduce Congressional and White House budgets by 15 percent. Although the nation’s economy continues to struggle, there’s no recession in Washington. Like most areas of government, the budgets for Congress and the Executive Office of the President have grown significantly in recent years. For example, spending on the legislative branch rose close to 50 percent from FY 2000 through FY 2010. Last year Congress gave itself a nearly four percent budget increase. In order to tackle our impending fiscal crisis, everyone must sacrifice – especially Washington. The Commission’s proposal would reduce the budgets for Congress and the White House by 15 percent. This proposal will save $800 million in 2015.
1.10.2 Impose a three-year freeze on Member pay. Unlike most Americans, members of Congress benefit from an automatic salary increase every single year – deserved or not. Before Congress can ask the American people to sacrifice, it should lead by example. The Commission recommends an immediate three-year salary freeze for all members of Congress.
1.10.3 Impose a three-year pay freeze on federal workers and Defense Department civilians. Out of duty and patriotism, hardworking federal employees provide a great service to this country. But in a time of budget shortfalls, all levels of government must trim back. In the recent recession, millions of private sector and state and municipal employees had their wages frozen or cut back, and millions more lost their jobs altogether. In contrast, federal workers’ wages increase annually due to automatic formulas in law, providing them with cost-of-living-adjustments totaling more than five percent in the last two years. This proposal would institute a three-year government-wide freeze on federal pay at every government agency, including the Department of Defense civilian workforce. This proposal will save $20.4 billion in 2015.
1.10.4 Reduce the size of the federal workforce through attrition. The federal government currently employs about two million people, and extends federal staffing through thousands more contractors. Washington needs to learn to do more with less, using fewer resources to accomplish existing goals without risking a decline in essential government services. Over time, the Commission recommends cutting the government workforce – including civilian defense – by 10 percent, or by 200,000. As part of the transition to a smaller, more efficient workforce, this would mean hiring only two new workers for every three who leave service. This proposal will save $13.2 billion in 2015.
1.10.5 Reduce federal travel, printing, and vehicle budgets. Despite advances in technology, federal travel costs have ballooned in recent years, growing 56 percent between 2001 and 2006 alone. Government fleets, meanwhile, have grown by 20,000 over the last four years. Printing costs are still higher than necessary despite technological advancement. We propose prohibiting each agency from spending more than 80 percent of its FY 2010 travel budget and requiring them to do more through teleconferencing and telecommuting. We also recommend a 20 percent reduction in the nearly $4 billion annual federal vehicle budget, excluding the Department of Defense and the Postal Service. Additionally, we recommend allowing certain documents to be released in electronic-only form, and capping total government printing expenditures. This proposal will save $1.1 billion in 2015.
1.10.6 Sell excess federal real property. The federal government is the largest real property owner in the country, with an inventory of more than 1.2 million buildings, structures, and land parcels. Holding this unneeded property carries maintenance costs and forgoes the opportunity to sell potentially valuable property. We propose directing the GSA to loosen agency restrictions associated with selling unused buildings and land. This proposal will save at least $100 million in 2015.
1.10.7 Eliminate all congressional earmarks. In FY 2010, Congress approved more than 9,000 earmarks costing taxpayers close to $16 billion. Earmarks are not competitively bid and are not subject to accountability metrics, making it difficult to measure effectiveness or conduct cost-benefit analysis. Many of these earmarks are doled out by members of Congress for parochial concerns in their districts and to special interest groups. Examples of parochial earmark spending include $1.9 million for a Pleasure Beach Water Taxi Service in Connecticut, $900,000 for a program encouraging Oklahoma students to role-play how to make tough choices as members of Congress, and $238,000 for ancient-style sailing canoes in Hawaii, among countless others. The Commission recommends the elimination of all congressional appropriations and authorizing earmarks as well as limited tax and tariff benefits. This proposal will save at least $16 billion in 2015.
RECOMMENDATION 1.11: FIND ADDITIONAL CUTS IN SECURITY AND NON-SECURITY SPENDING.
RECOMMENDATION 2.1: ENACT FUNDAMENTAL TAX REFORM BY 2012 TO LOWER RATES, REDUCE DEFICITS, AND SIMPLIFY THE CODE. Eliminate all income tax expenditures, dedicate a portion of the additional revenue to deficit reduction, and use the remaining revenue to lower rates and add back necessary expenditures and credits.
2.1.1 Cut rates across the board, and reduce the top rate to between 23 and 29 percent. Real tax reform must dedicate a portion of the savings from cutting tax expenditures to lowering individual rates. The top rate must not exceed 29%.
2.1.2 Dedicate $80 billion to deficit reduction in 2015 and $180 billion in 2020. In additional to reducing rates, reform must be projected to raise $80 billion of additional revenue (relative to the alternative fiscal scenario) in 2015 and $180 billion in 2020. To the extent that the dynamic effects of tax reform result in additional revenue beyond these targets, excess funds must go to rate reductions and deficit reduction, not to new spending.
2.1.3 Simplify key provisions to promote work, homes, health, charity, and savings while increasing or maintaining progressivity. Congress and the President must decide which tax expenditures to include in the tax code in smaller and more targeted form than under current law, recognizing that any add-backs will raise rates. The new tax code must include provisions (in some cases permanent, in others temporary) for the following:
- Support for low-income workers and families (e.g., the child credit and EITC);
- Mortgage interest only for principal residences;
- Employer-provided health insurance;
- Charitable giving;
- Retirement savings and pensions.
RECOMMENDATION 2.2: ENACT CORPORATE REFORM TO LOWER RATES, CLOSE LOOPHOLES, AND MOVE TO A TERRITORIAL SYSTEM.
2.2.1 Establish single corporate tax rate between 23 percent and 29 percent. Corporate tax reform should replace the multiple brackets (the top being 35 percent), with a single bracket as low as 23 percent and no higher than 29 percent.
2.2.2 Eliminate all tax expenditures for businesses. Corporate tax reform should eliminate special subsidies for different industries. By eliminating business tax expenditures – currently more than 75 – the corporate tax rate can be significantly reduced while contributing to deficit reduction. A lower overall tax rate will improve American business competitiveness. Abolishing special subsidies will also create an even playing field for all businesses instead of artificially picking winners and losers.
2.2.3 Move to a competitive territorial tax system. To bring the U.S. system more in line with our international trading partners’, we recommend changing the way we tax foreign-source income by moving to a territorial system. Under such a system, income earned by foreign subsidiaries and branch operations (e.g., a foreign-owned company with a subsidiary operating in the United States) is exempt from their country’s domestic corporate income tax. Therefore, under a territorial system, most or all of the foreign profits are not subject to domestic tax. The taxation of passive foreign-source income would not change. (It would continue to be taxed currently.)
RECOMMENDATION 2.3: PUT FAILSAFE IN PLACE TO ENSURE SWIFT PASSAGE OF TAX REFORM.
Health Care Savings
RECOMMENDATION 3.1: REFORM THE MEDICARE SUSTAINABLE GROWTH RATE. Reform the Medicare Sustainable Growth Rate for physician payment and require the fix to be offset. (Saves $3 billion in 2015, $26 billion through 2020, relative to a freeze)
RECOMMENDATION 3.2: REFORM OR REPEAL THE CLASS ACT.
(Costs $11 billion in 2015, $76 billion through 2020)
RECOMMENDATION 3.3: PAY FOR THE MEDICARE “DOC FIX” AND CLASS ACT REFORM. Enact specific health savings to offset the costs of the Sustainable Growth Rate (SGR) fix and the lost receipts from repealing or reforming the CLASS Act.
3.3.1 Increase government authority and funding to reduce Medicare fraud. (Saves $1 billion in 2015, $9 billion through 2020)
The Commission recommends increasing the ability of CMS to combat waste, fraud, and abuse by providing the agency with additional statutory authority and increased resources (through a cap adjustment in the discretionary budget.)
3.3.2 Reform Medicare cost-sharing rules. (Saves $10 billion in 2015, $110 billion through 2020)
Currently, Medicare beneficiaries must navigate a hodge-podge of premiums, deductibles, and copays that offer neither spending predictability nor protection from catastrophic financial risk. Because cost-sharing for most medical services is low, the benefit structure encourages over-utilization of health care. In place of the current structure, the Commission recommends establishing a single combined annual deductible of $550 for Part A (hospital) and Part B (medical care), along with 20 percent uniform coinsurance on health spending above the deductible. We would also provide catastrophic protection for seniors by reducing the coinsurance rate to 5 percent after costs exceed $5,500 and capping total cost sharing at $7,500.
3.3.3 Restrict first-dollar coverage in Medicare supplemental insurance. (Medigap savings included in previous option. Additional savings total $4 billion in 2015, $38 billion through 2020.)
The ability of Medicare cost-sharing to control costs – either under current law or as proposed above – is limited by the purchase of supplemental private insurance plans (Medigap plans) that piggyback on Medicare. Medigap plans cover much of the cost-sharing that could otherwise constrain over-utilization of care and reduce overall spending. This option would prohibit Medigap plans from covering the first $500 of an enrollee’s cost-sharing liabilities and limit coverage to 50 percent of the next $5,000 in Medicare cost-sharing. We also recommend similar treatment of TRICARE for Life, the Medigap policy for military retirees, which would save money both for that program and for Medicare, as well as similar treatment for federal retirees and for private employer-covered retirees.
3.3.4 Extend Medicaid drug rebate to dual eligibles in Part D. (Saves $7 billion in 2015, $49 billion through 2020)
Drug companies are required to provide substantial rebates for prescription drugs purchased by Medicaid beneficiaries. We recommend extending these rebates to Medicaid beneficiaries who are also eligible for Medicare (individuals known as “dual eligibles”) and who receive prescription drug coverage through the Medicare Part D program.
3.3.5 Reduce excess payments to hospitals for medical education. (Saves $6 billion in 2015, $60 billion through 2020)
Medicare provides supplemental funding to hospitals with teaching programs for costs related to residents receiving graduate medical education (GME) and indirect costs (IME). The Commission recommends bringing these payments in line with the costs of medical education by limiting hospitals’ direct GME payments to 120 percent of the national average salary paid to residents in 2010 and updated annually thereafter by chained CPI and by reducing the IME adjustment from 5.5 percent to 2.2 percent, which the Medicare Payment Advisory Commission has estimated would more accurately reflect indirect costs.
3.3.6 Cut Medicare payments for bad debts. (Saves $3 billion in 2015, $23 billion through 2020)
Currently, Medicare reimburses hospitals and other providers for unpaid deductibles and copays owed by beneficiaries. We recommend gradually putting an end to this practice, which is not mirrored in the private sector.
3.3.7 Accelerate home health savings in ACA. (Saves $2 billion in 2015, $9 billion through 2020)
The Moment of Truth: Report of the National Commission on Fiscal Responsibility and Reform The Affordable Care Act included several policies changing reimbursements for home health providers. The Commission recommends accelerating these changes to incorporate productivity adjustment beginning in 2013 and directing the Secretary of Health and Human Services (HHS) to phase in rebasing the home health prospective payment system by 2015 instead of 2017.
3.3.8 Eliminate state gaming of Medicaid tax gimmick. (Saves $5 billion in 2015, $44 billion through 2020)
Many states finance a portion of their Medicaid spending by imposing taxes on the very same health care providers who are paid by the Medicaid program, increasing payments to those providers by the same amount and then using that additional “spending” to increase their federal match. We recommend restricting and eventually eliminating this practice.
3.3.9 Place dual eligibles in Medicaid managed care.(Saves $1 billion in 2015, $12 billion through 2020)
Approximately nine million low-income seniors and disabled individuals are covered by both Medicaid and Medicare. The divided coverage for dual eligibles results in poor coordination of care for this vulnerable population and higher costs to both federal and state governments. We recommend giving Medicaid full responsibility for providing health coverage to dual eligibles and requiring that they be enrolled in Medicaid managed care programs. Medicare would continue to pay its share of the costs, reimbursing Medicaid. Medicaid has a larger system of managed care than does Medicare, and this would result in better care coordination and administrative simplicity.
3.3.10 Reduce funding for Medicaid administrative costs. (Saves $260 million in 2015, $2 billion through 2020)
We recommend asking states to take responsibility for more of Medicaid’s administrative costs by eliminating Medicaid payments for administrative costs that are duplicative of funds originally included in the Temporary Assistance for Needy Families (TANF) block grants.
3.3.11 Allow expedited application for Medicaid waivers in well-qualified states.
In order to give states new flexibility to control costs and improve quality, we recommend increasing the availability of state Medicaid waivers. Specifically, we recommend establishing presumptive eligibility criteria for up to 10 states over the next decade. These eligible states would be required to proactively seek out the waiver and to meet certain objective threshold criteria, including: improved quality, efficiency, and cost of care; and not increasing the uninsured population. Applications would be evaluated and overseen by the Medicaid Center for Innovation.
3.3.12 Medical malpractice reform. (Saves $2 billion in 2015, $17 billion through 2020)
Most experts agree that the current tort system in the United States leads to an increase in health care costs. This is true both because of direct costs – higher malpractice insurance premiums – and indirect costs in the form of over-utilization of diagnostic and related services (sometimes referred to as “defensive medicine”). The Commission recommends an aggressive set of reforms to the tort system.
Among the policies pursued, the following should be included: 1) Modifying the “collateral source” rule to allow outside sources of income collected as a result of an injury (for example workers’ compensation benefits or insurance benefits) to be considered in deciding awards; 2) Imposing a statute of limitations – perhaps one to three years – on medical malpractice lawsuits; 3) Replacing joint-and-several liability with a fair-share rule, under which a defendant in a lawsuit would be liable only for the percentage of the final award that was equal to his or her share of responsibility for the injury; 4) Creating specialized “health courts” for medical malpractice lawsuits; and 5) Allowing “safe haven” rules for providers who follow best practices of care.
Many members of the Commission also believe that we should impose statutory caps on punitive and non-economic damages, and we recommend that Congress consider this approach and evaluate its impact.
3.3.13 Pilot premium support through FEHB Program. (Saves $2 billion in 2015, $18 billion through 2020)
The Commission recommends transforming the Federal Employees Health Benefits (FEHB) program into a defined contribution premium support plan that offers federal employees a fixed subsidy that grows by no more than GDP plus 1 percent each year. For federal retirees, this subsidy could be used to pay a portion of the Medicare premium. In addition to saving money, this has the added benefit of providing real-world experience with premium support.
Several Commissioners support transforming Medicare into a “premium support” system – such as one proposed by Representative Paul Ryan and Alice Rivlin – that offers seniors a fixed subsidy (adjusted by geographic area and by individual health risk) to purchase health coverage from competing insurers. A voucher or subsidy system holds significant promise of controlling costs, but also carries serious potential risks. To assess the balance of benefits and risks, we recommend a rigorous external review process to study the outcomes of the FEHB premium support program to determine its effects on costs, health care utilization, and health outcomes. Although the population covered by FEHB is different from the Medicare population, if this type of premium support model successfully holds down costs without hindering quality of care in FEHB program, that experience would be useful in considering a premium support program for Medicare.
RECOMMENDATION 3.4: AGGRESSIVELY IMPLEMENT AND EXPAND PAYMENT REFORM PILOTS. Direct CMS to design and begin implementation of Medicare payment reform pilots, demonstrations, and programs as rapidly as possible and allow successful programs to be expanded without further congressional action.
RECOMMENDATION 3.5: ELIMINATE PROVIDER CARVE-OUTS FROM IPAB. Give the Independent Payment Advisory Board (IPAB) authority to make recommendations regarding hospitals and other exempted providers.
RECOMMENDATION 3.6: ESTABLISH A LONG-TERM GLOBAL BUDGET FOR TOTAL HEALTH CARE SPENDING. Establish a global budget for total federal health care costs and limit the growth to GDP plus 1 percent.
Other Mandatory Policies
Protect the disadvantaged. About 20 percent of mandatory spending is devoted to income support programs for the most disadvantaged. These include programs such as unemployment compensation, food stamps, and Supplemental Security Income (SSI). These programs provide vital means of support for the disadvantaged, and this report does not recommend any fundamental policy changes to these programs.
End wasteful spending. The first place to look for savings must be wasteful spending, including subsidies that are poorly targeted or create perverse incentives, and improper payments that can be eliminated through program integrity efforts.
Look to the private sector. Some mandatory programs, like federal civilian and military retirement systems, are similar to programs in the private sector. When appropriate, we should apply innovations and cost-saving techniques from the private sector.
RECOMMENDATION 4.1: REVIEW AND REFORM FEDERAL WORKFORCE RETIREMENT PROGRAMS. Create a federal workforce entitlement task force to re-evaluate civil service and military health and retirement programs and recommend savings of $70 billion over ten years.
RECOMMENDATION 4.2: REDUCE AGRICULTURE PROGRAM SPENDING THROUGH 2020. Reduce net spending on mandatory agriculture programs by $10 billion from 2012 through 2020 with additional savings to fund an extension of the agriculture disaster fund, and allow the Agriculture Committees to reallocate funds as necessary according to their priorities in the upcoming Farm Bill.
RECOMMENDATION 4.3: ELIMINATE IN-SCHOOL SUBSIDIES IN FEDERAL STUDENT LOAN PROGRAMS. Eliminate income-based subsidies for federal student loan borrowers and better target hardship relief for loan repayment.
RECOMMENDATION 4.4: GIVE PENSION BENEFIT GUARANTEE BOARD AUTHORITY TO INCREASE PREMIUMS.
RECOMMENDATION 4.5: ELIMINATE PAYMENTS TO STATES FOR ABANDONED MINES.
RECOMMENDATION 4.6: EXTEND FCC SPECTRUM AUCTION AUTHORITY.
RECOMMENDATION 4.7: INDEX MANDATORY USER FEES TO INFLATION.
RECOMMENDATION 4.8: RESTRUCTURE THE POWER MARKETING ADMINISTRATIONS TO CHARGE MARKET RATES.
RECOMMENDATION 4.9: REQUIRE TENNESSEE VALLEY AUTHORITY TO IMPOSE TRANSMISSION SURCHARGE.
RECOMMENDATION 4.10: GIVE POST OFFICE GREATER MANAGEMENT AUTONOMY
The Commission proposed a plan for social security that it stated eliminated the 75-year Social Security shortfall and put the program on a sustainable path thereafter. It stated that the most fortunate will have to contribute the most, by taking lower benefits than scheduled and paying more in payroll taxes. Middle-income earners who are able to work will need to do so a little longer. The document stated that at the same time, Social Security must do more to reduce poverty among the very poor and very old who need help the most. The projections that would be accomplished by the plan for social security are shown below.
RECOMMENDATION 5.1: MAKE RETIREMENT BENEFIT FORMULA MORE PROGRESSIVE. Modify the current three-bracket formula to a more progressive four-bracket formula, with changes phased in slowly. Change the current bend point factors of 90%|32%|15% to 90%|30%|10%|5% by 2050, with the new bend point added at median lifetime income.
In order to control costs, the Commission proposes gradually moving to a more progressive benefit formula that slows future benefit growth, particularly for higher earners. Currently, initial benefits are calculated using a progressive three-bracket formula that offers individuals 90 percent of their first $9,000 of (wage-indexed) average lifetime income, 32 percent of their next $55,000, and 15 percent of their remaining income, up to the taxable maximum. The Commission recommends gradually transitioning to a four-bracket formula by breaking the middle bracket in two at the median income level ($38,000 in 2010, $63,000 in 2050), and then gradually changing the replacement rates from 90 percent, 32 percent, and 15 percent to 90 percent, 30 percent, 10 percent, and 5 percent.
This benefit formula change will be phased in very slowly, beginning in 2017 and not fully phasing in until 2050. Because all bend point factors will continue to be wage-indexed, future beneficiaries will continue to have inflation-adjusted benefits larger than those received by equivalent beneficiaries today.
RECOMMENDATION 5.2: REDUCE POVERTY BY PROVIDING AN ENHANCED MINIMUM BENEFIT FOR LOW-WAGE WORKERS. Create a new special minimum benefit that provides full career workers with a benefit no less than 125 percent of the poverty line in 2017 and indexed to wages thereafter.
RECOMMENDATION 5.3: ENHANCE BENEFITS FOR THE VERY OLD AND THE LONG-TIME DISABLED. Add a new “20-year benefit bump up” to protect those Social Security recipients who have potentially outlived their personal retirement resources..
RECOMMENDATION 5.4: GRADUALLY INCREASE EARLY AND FULL RETIREMENT AGES, BASED ON INCREASES IN LIFE EXPECTANCY. After the Normal Retirement Age (NRA) reaches 67 in 2027 under current law, index both the NRA and Early Eligibility Age (EEA) to increases in life expectancy, effectively increasing the NRA to 68 by about 2050 and 69 by about 2075, and the EEA to 63 and 64 in lock step.
RECOMMENDATION 5.5: GIVE RETIREES MORE FLEXIBILITY IN CLAIMING BENEFITS AND CREATE A HARDSHIP EXEMPTION FOR THOSE WHO CANNOT WORK BEYOND 62. Allow Social Security beneficiaries to collect half of their benefits as early as age 62, and the other half at a later age. Also, direct the Social Security Administration to design a hardship exemption for those who cannot work past 62 but who do not qualify for disability benefits.
RECOMMENDATION 5.6: GRADUALLY INCREASE THE TAXABLE MAXIMUM TO COVER 90 PERCENT OF WAGES BY 2050.
RECOMMENDATION 5.7: ADOPT IMPROVED MEASURE OF CPI. Use the chained CPI, a more accurate measure of inflation, to calculate the Cost of Living Adjustment for Social Security beneficiaries.
RECOMMENDATION 5.8: COVER NEWLY HIRED STATE AND LOCAL WORKERS AFTER 2020. After 2020, mandate that all newly hired state and local workers be covered under Social Security, and require state and local pension plans to share data with Social Security.
RECOMMENDATION 5.9: DIRECT SSA TO BETTER INFORM FUTURE BENEFICIARIES ON RETIREMENT OPTIONS. Direct the Social Security Administration to improve information on retirement choices, better inform future beneficiaries on the financial implications of early retirement, and promote greater retirement savings.
RECOMMENDATION 5.10: BEGIN A BROAD DIALOGUE ON THE IMPORTANCE OF PERSONAL RETIREMENT SAVINGS.
For the committee to officially endorse the report, a supermajority of 14 of the 18 members had to support the plan. A vote was held on December 3, 2010, but only 11 of the members voted to support the proposal. Voting for the report were Bowles, Coburn, Conrad, Crapo, Cote, Durbin, Fudge, Gregg, Rivlin, Simpson, and Spratt. Voting against were Baucus, Becerra, Camp, Hensarling, Ryan, Schakowsky and Stern.
Each member made statements about the report through press statements or releases. A copy of each member's views can be found here.
 Website: Social Security Administration Article: Primary Insurance Amount Author: NA Accessed on: 11/15/2011