Virginia Reno, National Academy of Social Insurance

President Obama’s February 14th budget proposal for fiscal year 2012 would freeze or reduce funding for many federal programs as part of a strategy to begin reducing the federal deficit. The nation’s major social insurance programs – Social Security and Medicare – appear to have been exempt from such changes, at least for the moment.

The release of the President’s budget proposal is, of course, only the beginning of what will be a difficult and unpredictable negotiating process with a divided and contentious Congress. In the course of negotiations the pledges made this week by the President could be markedly altered, with potentially long-term consequences for the people who rely on these social insurance programs.

Social Security
Under the heading “Secure Social Security,” the President’s budget message states:

"Although Social Security does not face an immediate crisis and is not driving our short-term deficits or long-term debt, it does face a long-term financing shortfall. Failing to strengthen Social Security will result in substantial benefit cuts for future retirees and will undermine the basic notion that a lifetime of hard work should be rewarded with dignity in retirement. If we address these long-term challenges early, we can help ensure that Social Security’s compact remains strong and progressive for future generations.

The President believes that we should come together now, in bipartisan fashion, to strengthen Social Security for the future. He calls on the Congress to follow the example of great party leaders in the past — such as Speaker Thomas P. O’Neill, Jr. and President Ronald Reagan — and work in a bipartisan fashion to strengthen Social Security for years to come. Guiding the Administration in these talks will be the President’s six principles for reform: 

  • Any reform should strengthen Social Security for future generations and restore long-term solvency.
  • The Administration will oppose any measures that privatize or weaken the Social Security system.
  • While all measures to strengthen solvency should be on the table, the Administration will not accept an approach that slashes benefits for future generations.
  • No current beneficiaries should see their basic benefits reduced.
  • Reform should strengthen retirement security for the most vulnerable, including low-income seniors.
  • Reform should maintain robust disability and survivors’ benefits.”  
During his press conference on February 15, the President reiterated his belief that a bipartisan agreement similar to the one reached in 1983 by proxies for O’Neill (Bob Ball) and Reagan (James Baker), and then enacted (with one significant change) by Congress should be sought. The President was asked:
“You’ve been talking a lot about the need for tough choices in your budget, but your plan does not address the long-term crushing costs of Social Security, Medicare, Medicaid – the real drivers of long-term debt. Can you explain that? Where is your leadership on that issue and when are we going to see your plan?”
The President responded, in part:
“Now, you talked about Social Security, Medicare and Medicaid. The truth is that Social Security is not the huge contributor to the debt that the other two entitlements are. I’m confident we can get Social Security done in the same way that Ronald Reagan and Tip O’Neill were able to get it done, by parties coming together, making some modest adjustments. I think we can avoid slashing benefits, and I think we can make it stable and stronger for not only this generation but for the next generation.”
The President in his budget message also proposes to provide $12.5 billion in funding for the Social Security Administration, an increase of $1 billion from 2010, to reduce the huge backlog of disability claims. The budget funds SSA to process more than 3 million initial claims, reducing the backlog to 632,000, and to hear about 822,000 claims, reducing the hearings-pending backlog to roughly 597,000
In contrast to Social Security, Medicare faces a much greater financial shortfall, although costs for the program are largely driven by national health care spending trends. Medicare costs have been rising at a rate of more than 8% per year – more than three times the inflation rate for the economy as a whole – and now exceed $446 billion annually.  However, there may be relatively little more that President Obama can do in FY2012 to bring down the program’s costs without significantly cutting provider rates that may imperil access to care. The President’s signature legislative accomplishment in 2010, the Affordable Care Act, is projected by the Congressional Budget Office to reduce the deficit by about $230 billion over the next decade and almost $1 trillion over the following decade. But full implementation of the act will take several years to see if accountable care organizations, medical homes and other demonstration programs developed by the new Center for Medicare and Medicaid Innovation can actually bring large scale change to the way the health care delivery system works.
A key budget proposal, and one that could avert a head-on collision with the nation’s doctors, is to freeze physician payment rates at their current level for the next two years rather than cut the rates by 25% next January as called for by Medicare’s “sustainable growth rate” formula. The White House proposes to offset the estimated $62-billion cost with a number of adjustments to other parts of Medicare and Medicaid. Of the $62 billion in projected savings, the largest cuts – approximately $18 billion – are to come from changes in rules that allow states to increase federal matching funds for Medicaid. Such a change in policy, if enacted, may prove difficult for states that are already having a very hard time meeting their Medicaid obligations and additionally face the prospect of reduced federal funding when the enhanced federal spending under the American Reinvestment and Recovery Act ends in June 2011.
The FY2012 budget request for the Centers for Medicare & Medicaid Services (CMS) is $777 billion, to fund Medicare, Medicaid, and the Children’s Health Insurance Program (CHIP), as well as new health insurance initiatives and CMS operating costs. The total budget proposed for the Department of Health and Human Services (HHS) is $892 billion – a 2% cut from FY2011 and, as the New York Times noted, the first time in the agency’s 30-year history that its budget has been cut.  Such a cut will be difficult given the agency’s responsibility to work with states on the implementation of the Affordable Care Act.[1]
The Office of Management and Budget states that a major goal of the budget proposal is to reduce improper Medicare payments and broadly strengthen Medicare program integrity. Initiatives authorized by the ACA and highlighted by OMB include enhanced health care provider screening and participation requirements, improved data analysis capabilities, expanded overpayment recovery activities, and enhanced law enforcement authorities. 

[1] One major task is laying the groundwork for the state-based health insurance exchanges that are scheduled to begin providing coverage in January 2014. For more information on that, see NASI’s recently released Designing an Exchange: A Toolkit for State Policymakers, which may be accessed at:

Posted on: February 16, 2011

One Comment

  1. Bill Vaughan February 20, 2011 at 7:10 pm - Reply

    It seems to me that until we
    It seems to me that until we get a handle on total health care inflation, the effort to cut Medicare and Medicaid will generally result in distortions to those programs–lack of access, poorer quality, etc.

    I wish NASI could launch an effort to educate the public (and Congress) that what we really need is to treat health care like a utility: a vital service we all need. Costs, or at least inflation in those costs should be regulated. Any provider who inflates at a rate higher than some number (say inflation + 1%), adjusted to population, case severity, and productivity changes, will owe a refund to that provider’s payers, both public and private. With today’s computers and coding systems, such a system would be possible within a few years.

    The cry to continually cut Medicare and Medicaid, while necessary for reducing deficits, is terribly distorting to those programs. We need a total solution to health care costs.

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