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04/12/2011 03:39 pm ET Updated Jun 12, 2011

Suggestions for Obama's Medicare Counterproposal

President Obama has now called a "do-over" on his 2012 budget proposal. This news broke on the Sunday morning political television chat circuit, as the dust was settling on the government shutdown standoff for the remainder of the 2011 budget. Obama's move was prompted by the budget proposal put on the table by Republican numbers guru Paul Ryan, which seeks to "reform entitlements" by turning Medicare into a voucher system. Obama's new proposal will reportedly also offer "entitlement reform," although no specifics have leaked out yet. What the president should realize at this point, though, is that Ryan has just put him in the driver's seat. Ryan's proposal is so radical that it's going to be very easy for Democrats to present themselves as a more humane alternative to the Republican agenda, and it's going to be very easy for whatever Obama comes up with to look a lot better than just handing seniors a voucher and saying: "Good luck with that medical insurance marketplace."

Ryan's plan, no matter what you think about it, is being hailed as "bold," because it is the first time in a very long time that Republicans have actually put numbers on paper when talking about their budget priorities. Ryan's plan isn't all that new, actually, but when he introduced a similar plan last year, he only got about a dozen or so Republicans to sign on to it. Now that they're in the majority in the House, everyone is taking Ryan's plan a lot more seriously, it seems. Which is forcing the president's hand.

Obama was criticized for his initial budget proposal for not taking on the entitlement question at all. So he's going back to the drawing board and is expected to release his "2.0" plan later this week. It was leaked Monday that the White House is indeed going to include some entitlement reforms, and will also be raising taxes on the wealthy.

No word yet on exactly what all of this means, but since they seem to be open-minded about such things, I thought I'd offer up a few suggestions, on Medicare in particular. Social Security wasn't addressed in Ryan's budget, and Obama has been downplaying talk of a "crisis" in Social Security, so I'm assuming he won't be addressing this in his budget, either. The "fix" for Social Security is pathetically easy to come up with, even if the mainstream media never even brings it up -- remove the cap on earnings for contributions to the system. The media's only three acceptable solutions are "raise the retirement age," "reduce benefits," or "raise everyone's taxes." There's a third way, which would solve the problem overnight, but somehow they never get around to mentioning it.

But back to Medicare. Republicans are -- quite laughably -- pleading for Democrats not to "demagogue" and "lie" about the issue of health reform. It's as if the past two years had just been erased from their collective memory. Here is Ryan himself, on Fox News Sunday recently:

We are giving them a political weapon to go against us, but they will have to lie and demagogue to make that a political weapon. They are going to demagogue us, but it's that demagoguery that has always prevented political leaders in the past from trying to fix the problem. ... we will be giving [our] political adversaries things to use against us in the next election, and shame on them if they do that.

Shame on them. I mean, really. Let me just Google "death panels" here for a moment... whoops! My browser just crashed, with what it called a "hypocrisy overload." I mean, seriously... cry me a river, Paul.

Getting beyond the irony of Republicans complaining about demagoguing this particular issue, Obama's going to have to put something on the table by way of reforming Medicare. Here are three quick ideas which should at least be considered. The first two are basic Democratic ideas that have been around for a while, and the third is one where the president could actually agree with one of Ryan's ideas.

 

Allow prescription drug price bargaining

When the prescription drug benefit ("Medicare Part D") was created by President George W. Bush and a Republican Congress, there was absolutely no effort made to pay for it. But there was a strong Republican push to make it permanently more expensive than it needs to be. The prescription drug business is like most businesses in that discounts are available when you buy larger quantities of what's being sold. Other federal agencies (the Veterans Administration, for instance) are allowed to use this to bargain for better prices for prescription drugs (e.g., there are a lot of V.A. hospitals, therefore they can buy in bulk and save money). It would have been eminently sensible for Medicare to be allowed to strike similar deals with the drug companies, but Republicans refused to allow it -- to protect corporate profits for those drug companies. This is nothing more than naked corporate welfare.

The biggest selling point of allowing Medicare to bulk-purchase drugs at a discount is that it will save a whale of a lot of money -- and reduce the deficit, and help shrink Medicare's ballooning costs. It's a purely fiscal argument, in other words. A fiscally conservative argument. There is, quite simply, no argument to be made for blocking Medicare from saving money in this fashion -- except to line the pockets of Big Pharma. Obama should point this out, and challenge Republicans to defend the fiscally indefensible.

 

Remove the "donut hole" immediately

I fully admit that I'm no economist, budget analyst, or actuary. I have no idea as to how much money each of these suggestions would cost, or save, in other words. I'm offering them up on political grounds, and (quite lazily) leaving it for others to compute the bottom line.

Having admitted all of that, I would immediately take some of the savings from allowing Medicare to purchase drugs in bulk and accelerate one aspect of the Democratic health reform law passed last year -- by removing the entire "donut hole" immediately. This year.

When the prescription drug benefit was passed, one of the compromises struck in Congress was to leave this "donut hole" for seniors purchasing drugs. Up to a certain dollar amount per year, drugs are covered by the plan. Above that, seniors have to pay the full cost, until a second ceiling is met. When this is hit, drugs become free. Low costs are covered, high costs are covered, and the folks in the middle pay full price.

When Democrats reformed healthcare last year, a "donut hole fix" was included. The first year, seniors would get a check for a few hundred dollars to cover part of their "donut hole" costs. This amount would go up over time, until finally the donut hole would be closed and all senior drug costs would be covered equally.

Ryan's plan -- because it singles out anything even remotely connected to "Obamacare" (as he calls it) for the budgetary axe -- completely repeals the donut hole fix. Leaving President Obama a huge (and juicy) political target to shoot down. Because, unlike other Ryan "reforms" which are limited to those currently under the age of 55, this would affect actual seniors and it would affect them immediately. Obama should call Ryan's bluff on this one -- and counter-propose that the entire donut hole would disappear this year.

This would cost some money, of course. But, if coupled with the savings from allowing bulk purchasing, perhaps it would be offset. In a 10-year budget, the savings from bulk-purchasing would accrue every single year; whereas moving up the closing of the donut hole a few years would only impact those few years -- since Obama's budget already has the donut hole fix in the longer-term numbers.

Politically, this would be a very strong bargaining position for Obama. The difference between Democrats and Republicans would be crystal clear: "Republicans want to bring back the Medicare donut hole, meaning some seniors would pay more than $1,700 per year. Last year, Democrats began closing that donut hole with a $250 check. Democrats are now saying we should entirely eliminate the donut hole this year. Seniors have a choice -- pay up to $1,700 for their prescriptions under the Ryan plan, or pay zero under the Democratic plan. Which choice do you think seniors are going to get behind?"

 

Means-test Medicare

But while Obama should indeed draw stark lines with Ryan's Medicare plan -- especially the "voucher" idea, which should be mentioned as frequently as possible by every Democrat, to inform the public exactly what Ryan's up to -- the president can also adopt one idea from Ryan, in a show of bipartisanship. This idea is means-testing Medicare.

This is not a new idea, I should mention. It's been kicked around for decades, for several federal programs. Some programs are means-tested already (Medicaid, food stamps), for instance. Others (Social Security, Medicare) are not. It's mostly been a Republican idea, although at times in the past some Democrats have supported it.

It's a philosophical argument, to be sure, but it seems to be one of the only ones where Republicans are on the side of making the wealthy pay more. Democrats argue for the sanctity of Social Security and Medicare as something that everyone is entitled to (hence the "entitlement" -- the Republicans won this "framing" battle long ago). But by doing so, they are arguing that the Paris Hiltons of the world deserve government help when they retire, even if they're still making millions (or billions) of dollars a year in income after they do retire.

Democrats argue against any sort of means-testing, because they fear that once instituted, the cutoff point for those who get the full benefit would get lower and lower over time. Ryan's budget, for instance, would reportedly begin cutting off full Medicare benefits (in other words, making seniors pay more) starting at an income of $80,000 -- which is way too low. But President Obama could easily tie this to his long-standing pledge to the middle class and start charging seniors more for Medicare at the $250,000 yearly income level. Reduce benefits up to an even-larger income ($500,000 per year, perhaps), where people wouldn't get any Medicare at all.

The public thinks of Social Security and Medicare in "savings account" terms. In other words: you pay your money in, it sits there building up for you, and then you get it when you retire. This is a false analogy. It's really insurance: you pay in, and your money goes out the same year to cover other people who need it.

It's actually (little-"P") progressive to means-test government benefits. In a "progressive income tax" system (as opposed to a "flat tax"), those with more money pay a higher rate. Those with less money pay a lower rate. Those with very little money pay nothing.

Medicare, unlike Social Security, simply can't be put on a sustainable fiscal path for the future with a quick fix (raising the cap, in other words). It might not be all that good an idea to means-test Medicare, but it is starting to look like the best idea anyone's proposed so far. The other options include raising the age at which you receive Medicare, and Paul Ryan's voucher-based system. Medicare is already a "single-payer" plan, so no costs can be saved there (except on prescription drugs, of course).

President Obama could both reach out to the Republicans on one of their budget proposals, and at the same time keep his campaign promise not to "raise taxes" on anyone making $250,000 or less, by proposing a much more lenient version of means-testing Medicare. To his critics on the Left, he could say all he's doing is making the wealthy pay more -- which is a core Lefty tenet, right? To his critics on the Right, Obama could say: "Hey, it's your idea, how can you be against it?"

 

Conclusion

I have no idea what will be in President Obama's reboot of his budget proposal. I've tried, here, to suggest a few things for Medicare reform that could help him politically, and help him appear to be seriously working to solve the problem. Obama could present the plan as a mix of ideas from across the political spectrum. For the Left, there is the Medicare bulk discount on prescription drugs. For the seniors themselves, a much-more rapid solution to the donut hole problem -- as contrasted with Ryan's plan to reinstate the full donut hole. And for the Right, he's agreeing with one of their proposals, while tempering it so the only people affected by it are the truly wealthy.

There may be other, better ideas for Obama on Medicare reform, I'll fully admit. But by combining these three, Obama could be seen offering a compromise that gives all sides something they want, while also denying all sides something they don't want to give up. Which is exactly where Obama seems to want to position himself politically these days.

 

Chris Weigant blogs at:

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