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A Project of The Annenberg Public Policy Center

Fall Preview: Obama vs. Romney (and Ryan)

Budget spin, senior scare and more


President Obama says Mitt Romney has embraced a budget that could throw hundreds of thousands of children out of Head Start classrooms, eliminate air traffic control services in some places, and “ultimately end Medicare as we know it.”

Romney says that’s just “rhetorical excess” and accuses the president of “many … distortions and inaccuracies.”

So who’s right? We find grounds to fault both sides.

  • Obama’s list of popular programs that would be slashed or even eliminated assumes “these cuts were to be spread out evenly.” But the GOP plan does not make across-the-board cuts, so Obama’s examples are largely speculation and based on an incorrect premise.
  • Rep. Paul Ryan, author of the GOP plan, insists his plan makes “dozens of specific assumptions to justify our numbers.” But the fact is details are scarce, and the president is mostly correct when he complains that Republicans “don’t specify exactly the cuts that they would make.”
  • Obama says that the Republican budget “breaks our bipartisan agreement and proposes massive new cuts in annual domestic spending.” It’s true that Ryan’s plan calls for smaller cuts in military spending, and deeper cuts in domestic programs, than the bipartisan deal struck last year to allow an increase in the debt limit. But that deal called for automatic cuts only if Congress could not agree on another way to achieve the required amount of deficit reduction, or more.
  • Obama also attacked the Republican budget’s plan to give seniors premium-support payments and a choice between traditional Medicare and private plans, beginning in 2023. But the president’s claim that the plan would herd older, sicker patients into traditional Medicare isn’t necessarily true. That’s a matter of debate. Ryan’s plan would require private insurance companies to take all comers, regardless of their condition, and it includes risk-adjustments to give incentive payments to plans that end up covering less healthy individuals.


Obama launched his attack on the House Republican budget in an April 3 speech to newspaper editors. A day later, Romney spoke to the same group of editors and was asked about the president’s speech.

Romney, April 4: As I look at what the president said, there were just so many things that I found to be distortions and inaccuracies it’s hard to give a full list. But let me try with just a couple.

The major disagreement was over the potential impact of the GOP plan. Obama gave a dark picture of disastrously deep cuts and outright elimination of certain popular and critical programs — ranging from student loans and cancer research to border security and air traffic controllers.

Obama gave specific figures for the budget casualties, including “over 200,000 children” who would be shut out of Head Start and the loss of 4,500 federal grants “to combat violent crime, financial crime, and help secure our borders.” He also said “hundreds of national parks would be forced to close for part or all of the year,” and FAA cuts would result in “the complete elimination of air traffic control services in parts of the country.”

Obama prefaced his remarks about the impact of the House budget by saying, “I want to actually go through what it would mean for our country if these cuts were to be spread out evenly.” He later (correctly) anticipated that Republicans will criticize him for that. “Now, you can anticipate Republicans may say, well, we’ll avoid some of these cuts — since they don’t specify exactly the cuts that they would make,” he said.

Romney and Ryan jumped on Obama for basing his dire scenario on across-the-board cuts and claiming that the Republicans did not detail specific budget cuts.

“But, of course, you wouldn’t cut programs on a proportional basis,” Romney said. “There would be some programs you would … eliminate outright.” On his Facebook page, Ryan said Obama’s assumption that the budget “makes these kinds of indiscriminate cuts is false.” He says that the plan makes “dozens of specific assumptions to justify our numbers.”

Romney is correct that the GOP plan does not cut programs proportionally, so Obama’s list of cuts may or may not be accurate. But Obama is also right in that the plan doesn’t provide enough details to know what the Republicans would cut in most cases.

Here’s what the House plan does and doesn’t do: The House budget resolution provides exact spending amounts for broad categories (called “functions” in budget parlance) – such as $787.7 billion in budget authority for transportation over 10 years. But it provides no requirements and little guidance about how to reach those spending targets. It provides “illustrative policy options” – including eliminating funding for high-speed rail and the New Starts and Small Starts rail programs. But there are few such examples.

In all, the budget plan calls for nearly $5.3 trillion less in spending over 10 years than Obama’s budget. It also directs certain House committees to propose another $261 billion in cuts to avoid the automatic cuts that would take place as a result of the Budget Control Act of 2011, the bipartisan deficit-reduction agreement reached last year. The GOP budget instructs, for example, the House Committee on Agriculture to cut $33.2 billion over 10 years without further guidance. The Path to Prosperity, which is the guiding document that outlines the budget plan, offers some broad, non-binding suggestions – such as reducing farm subsidies.

What we have here, then, is a classic case of political gamesmanship. One side plays up the popular proposals (in this case, the GOP plan makes more progress in cutting deficits than Obama’s budget) while being cagey about what unpopular policies will be required to achieve that result. And the other side (in this case Obama) responds with a standard political counter-attack to fill in the blanks with the most unpopular stuff possible.

This is not the first time the White House has employed what the Washington Post once dubbed the “Washington Monument Syndrome” in honor of the national parks director who closed the landmark for two days a week in 1969 to make a point about budget cuts. As we previously wrote, the Obama White House used this political tactic when warning of the dire consequences if the Republicans were successful in forcing Congress to pay for the payroll tax cut.

But the president has a point about the deep cuts that would result from the House GOP plan, even if his specific examples may or may not be correct.

The nonpartisan Congressional Budget Office reviewed, at Ryan’s request, the long-term budgetary impact of his plan. CBO said spending on anything other than health care entitlements and Social Security would fall to about 5.75 percent in 2030 and 3.75 percent of the nation’s economy in 2050. How low is that? “By comparison,” CBO says, “spending in this category has exceeded 8 percent of GDP in every year since World War II.” And that doesn’t include defense, which last year was 5 percent of the gross domestic product. So, if defense spending wasn’t touched, there would be no money left for anything else.

The CBO, though, notes that its long-term projections are “highly uncertain” and depend on “future policies … changes in the economy, demographic trends, and international developments.”

One last thing about the budget battle: Obama says that the Republican budget “breaks our bipartisan agreement and proposes massive new cuts in annual domestic spending.” But breaking the agreement would be to spend more, not less.

Obama is referring to the Budget Control Act of 2011, the bipartisan deficit-reduction agreement reached last year. That plan, as the CBO explains, is estimated to reduce federal budget deficits by at least $2.1 trillion by 2021, including by placing caps on discretionary programs that would decrease spending by an estimated $900 billion during that period. But the so-called “super committee” created by the law failed to agree on at least $1.2 trillion of additional cuts and, as a result, the law requires automatic cuts of $1.2 trillion over 10 years in equal amounts from defense and non-defense spending.

It’s true that Ryan’s plan would alter that agreement by spending less on domestic programs. But what Ryan is proposing is a way to avoid the automatic spending cuts, and any such agreement would require a “bipartisan agreement” in order to become law. Besides, the president himself has been criticized by liberal groups for altering the terms of the Budget Control Act in ways that would benefit defense programs over non-defense.

Senior Scare

Obama also attacked a premium-support plan for Medicare that is part of Ryan’s proposed budget. Ryan’s latest proposal differs from the much-criticized plan he put forth last year, but you wouldn’t know that from the president’s misleading remarks. Obama also stated opinion as fact when he said that private insurance plans would be “cherry-picking” seniors.

We’ll take the president’s claims one by one.

Obama started off with a largely accurate description of Ryan’s new plan:

Obama: Instead of being enrolled in Medicare when they turn 65, seniors who retire a decade from now would get a voucher that equals the cost of the second cheapest health care plan in their area. If Medicare is more expensive than that private plan, they’ll have to pay more if they want to enroll in traditional Medicare.

Other than his contentious use of the word “voucher” — Ryan calls what are essentially subsidies “premium-support payments” — Obama is correct. Under the plan, seniors would get those subsidy payments and have a choice of traditional Medicare or various private plans. It’s certainly possible that private plans could be less expensive than traditional Medicare, and the costs would vary from region to region. Here’s the Ryan plan in a nutshell:

  • Beginning in 2023, 65-year-olds would pick an insurance plan from traditional Medicare and private plan options. A premium-support payment would be sent to the plan of their choice.
  • The Medicare eligibility age would be slowly raised to 67 by 2034.
  • The private plans would be required to offer a base level of benefits (the actuarial equivalent of traditional Medicare). They’d be part of a new Medicare exchange, and they’d be regulated by the Centers for Medicare and Medicaid Services.
  • The premium-support payments would be tied to the second-cheapest plan offered. And the proposal caps the growth rate on that plan at gross domestic product plus 0.5 percentage points. What happens if the growth exceeds that cap? Congress would be required to take some unspecified action to keep costs in check.

Obama went on to claim that those premium-support payments wouldn’t keep pace with rising health care costs, leaving seniors to bear more of the expense. But Ryan’s proposal says that the premium-support always will be enough to cover the second-cheapest plan offered to seniors. As we noted above, Congress would be tasked with finding ways to lower the insurance plan costs if they rose faster than GDP plus 0.5 percentage points.

Obama, April 3: If health care costs rise faster than the amount of the voucher — as, by the way, they’ve been doing for decades — that’s too bad.

That was a valid criticism of last year’s proposal, which tied the growth of those premium subsidies to the growth of inflation. (The Congressional Budget Office said that seniors would pay more under that plan.) But this year’s Ryan proposal is more generous.

It’s true we can’t say what exactly Congress might — or might not — do if costs grow faster than that cap of GDP plus 0.5 percentage points. Washington Post columnist Ezra Klein argues that lawmakers “could” pass along the extra cost to seniors. (Or, they could do nothing.) Ryan spokesman Conor Sweeney told us Congress could take such measures as changing provider reimbursements, means testing premiums, or cutting administrative costs — measures that the federal health care law’s Independent Payment Advisory Board might also recommend in its effort to keep the growth of Medicare down.

Sweeney told us that the competition created by private plans bidding to attract seniors to their plans will be enough in and of itself to keep costs below the cap. “Through greater choice and competition, that backstop would never be hit,” he says. But that, too, remains to be seen. One critic, Paul N. Van de Water, a senior fellow with the Center on Budget and Policy Priorities, says that Ryan’s GDP-plus growth rate “will likely fall short of the actual growth of health care costs.”

Finally, Obama challenges the Ryan plan with a debatable point. He states opinion as fact when he says that private plans would be “cherry-picking” healthy seniors, leaving sicker and older seniors in traditional Medicare, which would then have a tough time surviving. Some critics believe this would happen, but the Ryan plan does include protections against it. Sweeney argues that such cherry-picking wouldn’t happen.

Obama: The way these private insurance companies save money is by designing and marketing plans to attract the youngest and healthiest seniors — cherry-picking — leaving the older and sicker seniors in traditional Medicare, where they have access to a wide range of doctors and guaranteed care. But that, of course, makes the traditional Medicare program even more expensive, and raise premiums even further.

The net result is that our country will end up spending more on health care, and the only reason the government will save any money — it won’t be on our books — is because we’ve shifted it to seniors. They’ll bear more of the costs themselves. It’s a bad idea, and it will ultimately end Medicare as we know it.

In a Facebook posting, Ryan countered: “Cherry-picking is prohibited under our reforms.” His plan requires all insurance carriers in the Medicare exchange to offer coverage to all seniors, regardless of health status or age.

Republican House budget plan (Path to Prosperity), page 53: These protections ensure that Medicare’s sickest and highest‐cost beneficiaries have access to affordable and quality coverage choices. The proposal requires all plans on the Exchange to include guaranteed issue (i.e., they cannot deny coverage based on pre‐existing conditions) and community rating (i.e., they cannot impose prohibitively disparate costs on seniors) to ensure that seniors are able to choose an affordable health plan that works best for them — without fear of denial or discrimination.

But the president didn’t say that insurance companies would reject certain seniors — instead, he said that the companies would design plans that attract healthier enrollees. That’s the view also held by Van de Water at the Center on Budget and Policy Priorities. He writes that older, sicker individuals would be the ones who stay in traditional Medicare — where they wouldn’t be limited to certain in-network health care providers. And eventually this would “likely” cause “the gradual demise of traditional Medicare.”

But Ryan’s plans includes protections against this, too. When we asked Sweeney, in Ryan’s office, about this criticism, he replied that in addition to guaranteed issue and community rating, the Ryan plan includes risk adjustment, based on the type of enrollees in the plans. Health plans that cover a high number of healthy, “low-risk” seniors would be assessed fines, and insurance carriers that end up covering a high number of less healthy seniors would get incentive payments. “You’re not on your own,” Sweeney said. “It’s a Medicare exchange that’s regulated and has extra protections.” The plan would also provide medical savings accounts to low-income beneficiaries to help with out of pocket costs.

Van de Water told us that the risk-adjustment — which is something Medicare does now — wouldn’t be sufficient. “There’s evidence that the adjustment isn’t complete, because it’s very hard to measure the differences between the health of different populations.”

He also said that there is some evidence now that healthier seniors would migrate to the private plans instead of traditional Medicare. Healthier people tend to chose the private plans offered through Medicare Advantage, he said. Why? “I think the best reason has to do with the choice of providers,” Van de Water said. Traditional Medicare has an unlimited choice of providers, while private plans “tend to have restricted networks,” something that doesn’t matter as much to healthier individuals.

In a study published this year in the New England Journal of Medicine, Brown University researchers said that MA plans that started covering gym memberships attracted healthier beneficiaries. The study compared MA plans that added gym coverage to MA plans that did not. So, it wasn’t that plans were rejecting older or sicker seniors, but the type of benefit offered was attractive to healthier beneficiaries.

But, on the other hand, there’s some evidence that private plans could appeal to those with serious ailments. There are also MA plans that specifically target the chronically ill. What are known as Special Needs Plans cover three categories of seniors: those who have chronic conditions, those who are in nursing homes, and those who are eligible for both Medicare and Medicaid. Only a small percentage of Medicare beneficiaries are in those plans, however. Of the 47.7 million Medicare beneficiaries, 11.5 million are on Medicare Advantage plans, and of those, 1.3 million chose one of the Special Needs Plans. Most of those beneficiaries were dual-eligibles. In fact, only 160,034 seniors were enrolled in chronic-care plans, according to a report by the nonpartisan Kaiser Family Foundation. Plans that only cover the chronically ill are available in 25 states, the District of Columbia and Puerto Rico.

Though they cover relatively few seniors now, these Special Needs Plans show some promise for handling sicker, older patients in the future, according to the Kaiser Family Foundation. It said in a policy brief that “the experience of the plans may inform improvements in the management of care for sick and frail Medicare beneficiaries.” And a recent study published in the journal Health Affairs concluded that the intensive patient monitoring provided by the largest of these plans resulted in beneficiaries experiencing “lower rates of hospitalization and readmission than their peers in fee-for-service Medicare.” (The lead author of the study is chief government affairs officer for the XLHealth Corporation, which sponsors the plan. Health Affairs is a peer-reviewed publication.)

Both sides of this debate can find evidence and research to back up their points. But Obama gave his view as fact, when it’s a matter of opinion.

Much of the Obama-Ryan disagreement is a policy debate over what would work best to slow the growth of Medicare spending — which is the ultimate goal of both sides. The president charges an independent advisory board, set up by the federal health care law, with finding ways to do it. Congress can ignore the Independent Payment Advisory Board’s recommendations, if it either makes the same size of spending cuts as IPAB suggests or if it rejects the suggestions with a three-fifths majority vote. Ryan’s plan leaves the cost-cutting to Congress, if competition alone won’t be enough. The federal health care law stipulated that the IPAB would have to make recommendations if the growth of Medicare spending exceeding GDP plus 1 percentage point, beginning in 2020, but the president’s 2013 budget drops that cap to the very same cut-off Ryan proposes: GDP plus 0.5 percent.

The Congressional Budget Office says that government spending under Ryan’s plan would be substantially lower than under current law or the CBO’s alternative fiscal scenario, which takes into account actions Congress is likely to take. “[B]eneficiaries might face higher costs,” CBO said, but added there was plenty of uncertainty in making these types of predictions. Each side has accused the other of hurting seniors, but the reality is that cutting back on the growth of Medicare spending, whether it’s through current law or the Ryan plan, would have the same types of consequences, CBO said. Those consequences might be stronger, however, under the Ryan plan.

CBO, March 20, 2012: Possible consequences include the same kinds of effects noted for the baseline and alternative fiscal scenarios—reduced access to health care; diminished quality of care; increased efficiency of health care delivery; less investment in new, high-cost technologies; or some combination of those outcomes. In addition, beneficiaries might face higher costs, which could in turn reinforce some of the other effects. At least some of those effects would of necessity be a great deal stronger than under the baseline scenario or alternative fiscal scenario because spending would be so much lower. However, as with the other scenarios, CBO does not have the capability at this time to estimate such effects for the specified path of Medicare spending.

It’s speculation for Obama to imply that seniors would pay more under Ryan’s plan, or that private plans would find ways to cherry-pick healthy individuals. The outline of the proposal says that wouldn’t happen, and even CBO says it can’t predict what exactly would occur.

— by Eugene Kiely and Lori Robertson


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