The White House Blog

Getting at the Facts

On Tuesday, the President gave a speech in which he contrasted his vision for our economy – one where everyone pays their fair share and everyone plays by the same set of rules – with the Republican approach of giving massive tax cuts to millionaires and billionaires paid for by cuts to programs that the middle class and seniors depend on.

Congressman Ryan and his staff has since taken issue with some of the critiques the President made about the Republican approach.  We believe in backing up our facts – so here’s some further explanation of some of the core problems with the Ryan Republican Budget.

1. The Republican budget enacts a drastic, unspecified 19 percent cut in non-defense discretionary programs that help the middle class and help our economy grow.

The House Budget resolution includes a $1.060 trillion cut in non-defense discretionary spending, below the levels to which both Democrats and Republicans agreed in the Budget Control Act.  We did the math, and a $1.060 trillion cut to discretionary programs – as called for in the Republican budget - would amount to a 19 percent cut in non-defense discretionary spending.  By comparison, the cuts proposed in the House Budget resolution would be three times as great as the cuts required by the sequester and because of the lack of detail in the resolution, we are left to assume that they would be applied in the same arbitrary, across the board, manner.  The President carefully described the impact of those cuts if they were distributed across the board, and noted that protecting some places would require even deeper cuts in other places.  

House Budget Committee Chairman Ryan’s office responded that considering the cut across-the-board wasn’t fair because “the House Budget Committee made dozens of specific assumptions to justify our numbers, and we made these assumptions public in the hundreds of pages of text we posted in plain view on the House Budget Committee’s website.”  But if you look at the report, it only includes a list of “illustrative policy options.”  But they’re just that—as you can see on page 30 of that same PDF: “this report offers a range of policy options to help demonstrate how the budget’s fiscal goals could be achieved.  These options are illustrative….”  So it’s not as though the House is taking ownership of these proposals—as President Obama has owned his specific ideas in each of his budgets. 

What’s more, even if you look at the specific numbers in the House budget, you see that they aren’t very specific.  A Budget Resolution shows federal spending distributed across different categories of spending.  Most of the categories are specific—things like “Energy” or “Administration of Justice.”  But the House put 85 percent of their cuts into a category called “Allowances” (see page 16 of the same report).  That’s a great big “TBD.”  The 19 percent cut is calculated by taking the level Congress agreed to last summer in the Budget Control Act for non-defense discretionary programs in 2013 and subtracting the proposed $406 billion cap for 2014 in the House Republican Budget.  That’s a $95 billion cut that, when left undistributed, is a 19 percent cut to the 2012 level of services in every non-defense discretionary program.

And even if you were going to give the House Republican Budget credit for the 15% of their domestic discretionary cut which does fall into specific categories, you would have to make deeper cuts in other programs.  For example: the House said they don’t want to cut Veterans Benefits.  When we calculated the percentage cut in non-defense spending, we spread it across the entire discretionary budget, including Veterans programs.  If you took Veterans benefits out of the mix, the cuts to everything else would be a lot bigger.

The bottom line is that when a budget proposes cuts as vast and vague as this budget, the best way to illustrate its impact is to show the effects across the board. The Republican budget’s lack of specifics gives us no other choice.

2. The Republican approach would end Medicare as we know it.

Chairman Ryan’s team also disputes the President’s characterization that House Republican Budget would “end Medicare as we know it.”  But that’s exactly what would result from a plan that would voucherize the Medicare program beginning in 2023 and would reduce deficits only by shifting cost and risk onto America’s seniors. 

First, they claim that the “second-lowest-cost private plan” (the benchmark at which Chairman Ryan would set the value of a senior citizen’s Medicare voucher) would provide the same benefits in a more cost-effective way than traditional Medicare. 

  • But analysis by the non-partisan Congressional Budget Office on this topic in 2011 found something far different:  that private plans cost 39 percent more than traditional Medicare, in part because Medicare enjoys lower administrative costs and better purchasing power.  And the flip side is that, for those limited areas of the country where private plans are cheaper than traditional Medicare, premiums for seniors seeking to stay in traditional Medicare will rise as a result of the bidding program – upwards of 49 to 64 percent on average, according to 2006 CBO study of a similar proposal.  In other words:  In most of the country, private Medicare providers will cost more to deliver the same benefit as traditional Medicare.  And in those few places where that’s not true, the security of the traditional Medicare program will become a lot more expensive for seniors who wish to stay in it. While the exact numbers in Chairman Ryan’s current plan may differ from these previous studies, which had different details and different assumptions, the broad analysis would still apply to his current proposal.

Second, the Ryan team claims that, under their plan, the risk of private plans going up in price faster than the value of the Medicare voucher would not entirely fall on the beneficiary because Congress would be required to act.

  • The Ryan team does not even need to look beyond its own ranks to disprove this one.  According to testimony by House GOP Budget Committee staff, the Ryan budget would cap growth in the value of voucher payments to the rate of GDP growth plus 0.5 percent – a rate below the average annual growth of health care costs.  And when asked what would happen if competitive bids increased faster than that rate, Staff Director Austin Smythe testified: “The premium support payment would be capped at that level” – in other words, if the voucher’s value does not keep up with the cost of private plans, seniors will be expected to pick up the difference, a radical departure from the promise of the current Medicare program. Moreover, there is no way around this conclusion because under the Ryan Medicare plan just about the only cost to the government is what it pays for the voucher, so the only way to hit his Medicare growth rate target is to reduce the voucher and shift costs to seniors.

Third, the Ryan team claims that there will always be one health plan that is fully covered by the voucher and always one plan that costs even less.

  • But, after 2023, the first year their budget goes into effect, this just isn’t true.  While it is true that every newly eligible senior could choose a plan that was fully covered in that first year, even then that plan generally would not provide many of the benefits that Medicare beneficiaries have enjoyed from traditional Medicare.   And, after 2023, there is no guarantee that any plan – even those geared toward younger and healthier seniors – would be fully covered.  Because the voucher amount would not be based on the actual bids of private providers, but rather on a growth rate capped below the historical and projected growth of health care costs, there is simply no guarantee that the voucher will be able to keep up – with seniors on the hook if it does not.

The House Republican plan’s voucher is based on an spending  target with all of the risk falling on beneficiaries, which is a key reason that led Henry Aaron, one of the co-inventors of premium support, to write “current proposals are not premium support as [former Urban Institute President Robert] Reischauer and I used the term.”

Last, the Ryan team claims that private plans “cherry picking” the healthiest seniors away from traditional Medicare would be prohibited under their reforms because their plan includes risk-adjusting as an extra precaution against doing so.

  • For starters, the House Republican Budget does not provide any details that would allow one to judge if they contained even an attempt at serious regulations.  But even the best intentioned and implemented regulations and risk adjustment procedures would still fall well short of what is needed to prevent an adverse selection spiral from driving healthier seniors out of traditional Medicare and dramatically raising the costs for those who remain.  For example, a 2002 study published by the Kaiser Family Foundation found that if risk-adjustment were 50 percent effective (which is four times the effectiveness of risk adjustment in Medicare today [http://www.medpac.gov/transcripts/RiskAdj_Mar_2012.pdf] according to the non-partisan Medicare Payments Advisory Commission (MedPAC) that advises Congress), 76 percent of seniors would be pushed out of traditional Medicare by the 20th year of the program – effectively ending Medicare as we know it.

3. The Republican budget would mean 19 million Americans lose the health coverage they are already getting under current Medicaid

Finally, Chairman Ryan’s staff is disputing the President’s statement yesterday that the House Republican budget would take away health care for 19 million Americans.  Yet again, the Ryan team is missing the mark with their criticisms.  If anything, the President was conservative in his characterization of the effects of the House Republican Medicaid plan.

The President based his statement on a study by the non-partisan Kaiser Family Foundation.  That study found that, by block granting Medicaid, “the House Budget Plan would lead to . . .  19.4 million people being cut” from the program. 

The reason is this:  The House Republican budget plan turns Medicaid into a block grant and indexes it to consumer prices, but without any adjustment for additional beneficiaries or health costs.  So if health care costs continue to rise faster than other prices, or if the aging population results in more elderly Medicaid enrollees, or if a future recession results in Americans losing their jobs and newly qualifying for Medicaid, the block grant structure proposed in Ryan’s budget would prevent the program from expanding to meet those needs. 

Over the next decade, this structure would result in $800 billion in cuts to the Medicaid program as it currently exists, 34 percent less funding than is currently projected and a cut so deep that it would be impossible to achieve without denying care to many of the people who rely on Medicaid today. 

And that’s just the Ryan plan’s cuts from the existing Medicaid program.

That same Kaiser study also found that the Ryan plan’s repeal of the Affordable Care Act would take away Medicaid coverage from the additional 17 million Americans who are slated to receive it when health reform goes into full effect.  As a result, according to Kaiser, counting the impact of the ACA as well as the block grant, the result would be a cut of 36.4 million enrollees, a reduction of 48 percent.