Obama Wins Round One of Budget Negotiations

CNN is reporting that the “Fiscal cliff deal is down to wrangling over the details.” While others in the media continue to say that talks are stalled, everything I know about both the economics and the politics of the situation tells me that CNN is right.

At 4:30 this afternoon, CNN updated its story: “Both sides agree the wealthy will pay more, so now fiscal cliff  talks come down to how much Republicans can wring out of the White House in return for giving in on taxes.

“To President Barack Obama, it’s all about first locking in additional revenue from raising taxes on high-income owners, an outcome the GOP has long rejected.”

President Obama had made it clear that negotiations over government spending on safety nets such as Medicare wouldn’t begin until Republicans accepted a higher marginal tax rate for individuals earning over $200,000 and couples earning over $250,000.

The president dug in, and, according to CNN, he has won round one.

“Retiring Republican Rep. Steve LaTourette of Ohio told CNN on Thursday that he sensed a shift in the House GOP approach during a conference meeting the day before.

“A GOP source told CNN that talks between staff members on both sides resumed Thursday for the first time this week, after Obama and Boehner spoke by phone the day before.”

A Two-Step Approach

It is not clear whether negotiations over so-called “entitlements” will be concluded before the end of the year. But CNN, reports

“All signs point toward a two-step approach sought by newly re-elected Obama — an initial agreement that would extend lower tax rates for income up to $250,000 for families, while letting rates return to higher levels from the Clinton era on income above that threshold.”  That agreement on taxes will be signed and sealed before the end of the year.

“Even conservatives such as Oklahoma Sen. Tom Coburn and Louisiana Gov. Bobby Jindal acknowledge the obvious — taxes on the wealthy are going up despite opposition by Republicans.

“‘Whatever deal is reached is going to contain elements that are detrimental to our economy,’ Jindal wrote Thursday in an opinion piece published by Politico. ‘Elections have consequences, and the country is going to feel those consequences soon.’”

It is possible that President Obama could still agree to lift the income bar above $250,000 and extend tax cuts for families earning less than $400,000 or $500,000– but I doubt he will.  It’s difficult to argue that Americans perched on the top two steps of a 100-step income ladder cannot afford a hike in their tax rate that applies only to what they earn above and beyond $250,000.

CNN reports that the President is not wavering: “Obama demands that the House immediately pass a measure already approved by the Senate to extend tax cuts from 2001 and 2003 on income up to $250,000 for families.”

He contends that both Democrats and Republicans agree that the 98% of American families making less than $250,000 a year should avoid a tax hike when the lower rates from the Bush administration expire on December 31. He is calling for the House to guarantee that outcome by passing the Senate measure now.

Once that happens, Obama and Democratic leaders promise, they will work out compromises on spending cuts sought by Republicans to reduce the deficit, such as reforms to Medicare and Medicaid .

Spending on Safety Nets: President Obama in the Driver’s Seat                  

President Obama began this negotiation with, by far, the stronger hand. A majority Americans back the president on the three major issues at stake: they believe that tax cuts for the wealthiest 2% should not be extended, they are opposed to lifting the eligibility age for Medicare to 67, and they are opposed to slicing Social Security benefits.

I very much doubt that President Obama will agree to conservative demands that we trim cost-of-living adjustments for retirees living on Social Security. Those “COLA” adjustments already are paper-thin.  And while overall inflation is low, prices for the things that a senior must buy—food, health care and utilities have been rising.

I also don’t think the president will budge on asking Americans to wait until they are 67 before apply for  Medicare—in part for the reasons I outline in the post below, in part because he doesn’t have to. He may have considered conceding this point in the past, but at that time he was in a much weaker position. Today his approval rating is at a three-year high.

By contrast, the GOP is in disarray. It’s famed “party discipline” is crumbling.  This morning, Bloomberg reported that House Speaker John “Boehner’s once-unified coalition against income tax rate increases is showing signs of fracture.” l

“More House Republicans have begun to endorse Oklahoma Republican Tom Cole’s call to extend all tax cuts for middle-class earners. Representative Kay Granger of Texas called it just the right thing to do.  . . . Florida Representative Dennis Ross, a freshman Republican, said he wouldn’t rule out voting for Senate-passed legislation to extend only the middle-class tax cuts.”

Republican U.S. Senator Jim DeMint’s announcement that he is leaving Congress to head the conservative Heritage Foundation is another sign that small-government conservatives within the Republican party are losing power.

At the Foundation, DeMint’s reach will be limited: he will be preaching to the already-converted. Or as LOLGOP put it earlier today,  “He’s going home to filibuster the family.”

Bloomberg notes, “DeMint’s announcement came two days after he criticized fellow Republican House Speaker John Boehner’s offer to generate $800 billion in new tax revenue. 

DeMint’s departure also “coincides with efforts in the House to crack down on the anti-tax Tea Party wing of the Republican Party.”  Earlier this week, four Republicans who opposed Boehner were removed from their committee assignments—including two first-term Republican Tea Party warriors, Tim Huelskamp of Kansas and Justin Amash of Michigan, who were dropped from the powerful budget committee.

Meanwhile, in the Senate, Elizabeth Warren is winning a seat on the banking committee. The pessimists who predicted that “nothing will change” in Washington following President Obama’s re-election were wrong.  We’re now seeing a much stronger chief executive. At last, he knows that he doesn’t have to negotiate with himself; he is in a position to lead progressives in Congress. And he will be working with a significantly more liberal Senate. Granted, Republicans will hold the majority of House seats, but  it’s clear that some rank-and-file Republicans are no longer terrified of party leadership. They will be willing to talk across the aisle.

The Fiscal Cliff—Merely a Metaphor

Republicans now recognize that President Obama is not afraid of the fiscal cliff.

This morning, on NBC’s “Today” program, former Wyoming Senator Alan Simpson,” the Republican co-chairman of the president’s 2010 deficit commission, conceded that the odds are “probably pretty real” that Obama is prepared to take the U.S. over the cliff if taxes on the wealthy aren’t raised.”

Obama realizes that if we are going to fight the recession, stimulate the economy, and create jobs, the government we  need those revenues.

Moreover, the president knows that if Democrats and Republicans don’t reach an agreement by January 1, the economy will not crash on January 2.  The “fiscal cliff” is merely a metaphor.  Wall Street knows this: despite dire predictions, both the stock and bond markets are holding up pretty well.

     Where the President Might Cut Medicare Spending

Nevertheless Obama will reduce government spending where he can. We cannot  afford to squander money, and there are places where he could rein Medicare spending.

In November, the Campaign for American Progress (CAP) released a “Senior Protection Plan” which proves that it is possible to save more than of $385 billion over 10 years–without inflicting pain on Medicare beneficiaries. Over the long term, the plan would do what we most need to do–bend the curve of Medicare inflation.

No doubt, President Obama has read this report: Peter Orszag and Zeke Emanuel, two of his most trusted healthcare advisers during his first term, were part of the group who wrote it.

Here are some highlights from CAP’s proposals:

Ask Companies that Sell Medical Devices and Supplies to Medicare and Medicaid to Submit Competitive Bids

As I have reported in the past on HealthBeat, Medicare now over- pays for many medical devices, lab tests, advanced imaging services and medical supplies.

In 2011 Medicare began competitive bidding for durable medical equipment, such as hospital beds and wheelchairs, and succeeded in reducing Medicare’s outlays in this area by more than 42 percent. The Affordable Care Act requires Medicare to expand competitive bidding for durable medical equipment, prosthetics, orthotics, and supplies to all regions of the country by 2016

CAP would go further, moving up the date for nationwide competitive bidding to 2014.

The Patient Protection Plan also would “extend competitive bidding by 2015 to medical devices, laboratory tests, advanced imaging services, and all other health care products.”

CAP notes that “competitive bidding for medical devices in particular would produce substantial savings. The Government Accountability Office found that prices for cardiac implantable medical devices vary substantially, by several thousand dollars.”

In addition, CAP recommends extending  competitively-bid prices to Medicaid and all other government health programs.

Below, estimated savings

Nondurable medical products

$3 billion

Durable medical equipment nationwide by 2014

$7.5 billion

Clinical laboratory services

$4.2 billion

Durable medical equipment for Medicaid

$2.8 billion

Medical devices

$20.5 billion

Total estimated savings

$38 billion

Apply Competitive Bidding to Medicare Advantage

Instead of using spending under traditional Medicare as  the benchmark for bids that private sector Medicare Advantage insurers submit, CAP suggests that  Medicare base the benchmark for private plans on their average bid by 2014. Such competition among private plans would not undermine or erode traditional Medicare. Estimated savings: $10 billion

Require price transparency for medical devices

“Many hospitals cannot obtain the best prices for medical devices partly because a lack of price transparency inhibits competition. The Government Accountability Office found that device manufacturers often require hospitals to include confi­dentiality clauses in contracts that prohibit them from sharing price information. These clauses should be prohibited.”

No Estimate of Savings

Promote shared decision-making in Medicare

Shared decision-making uses patient decision aids to help patients understand their treatment options, and the the risks and benefits of each option. They can then make a “informed choice” about which is best for them. As CAP explains: “Studies have shown that patient decision aids can reduce the use of more invasive treatment options without harming health outcomes.50 The most recent study found that patient decision aids reduced hip replacement surgeries by 26 percent, knee replacement surgeries by 38 percent, and health care costs by 12 percent to 21 percent.”

Estimated Savings: $3.8 Billion

Extend Medicaid drug rebates to low-income Medicare beneficiaries

Medicare is paying too much for drugs—far more than the governments of other developed countries that receive discounts.

Today, CAP observes, “drug manufacturers pay rebates for drugs provided to Medicaid beneficiaries, resulting in significant price discounts. Before Congress created the prescription drug program under Medicare Part D” (which was a gift to the pharmaceutical industry), “drug manufacturers paid rebates for drugs provided to beneficiaries who are eligible for both Medicare and Medicaid—known as ‘dual eligibles.’

“While Medicare prescription drug plans negotiate rebates with manufacturers, these rebates are substantially lower than Medicaid rebates.” Insurers and drug-makers make “deals” that are not always in the best interest of Medicare. “For selected brand-name drugs, the Office of Inspector General found that rebates reduce Medicaid spending by 45 percent, but reduce Medicare Part D spending by only 19 percent.”

As a result, shifting dual eligibles’ drug coverage from Medicaid to Medicare has produced an enormous windfall to drug manufacturers. Medicaid rebates should be extended to brand-name drugs purchased by low-income Medicare beneficiaries.

Estimated savings: $137.4 billion

These are just a few of the most promising ideas in the “Senior Protection Plan.”

In the future, I’ll write about other proposals.

What is clear is that Medicare can squeeze more waste out of our money-driven health care system, without rationing care, or shifting costs to seniors.

8 thoughts on “Obama Wins Round One of Budget Negotiations

  1. Very nice summary of our current state of affairs.

    Question: Will anything be done about the exorbitant prices that hospitals are allowed by Medicare for diagnostic testing and surgical procedures, in comparison to those allowed for outpatient facilities.

  2. My frail mother (96) suffered a UTI and was taken to the hospital. They withheld treatment and returned her to the assisted living facility on hospice expecting her to die. She beat the infection on her own but hospice continued. I wanted her off hospice but the hospice provider warned if I took her off she would have to be relocated because the facility could no longer care for her. I said what? They said only a doctor can make the call to take her off hospice. They threatened to notify the state agency that licenses the facility if I took her off and kept her there. SHE DID NOT NEED HOSPICE CARE. Her condition was exactly the same as before the UTI. I felt trapped and manipulated. The hospice provider was charging $7,000/month to Medicare and was reimbursed over $4,000 – FOR NOTHING. They even scheduled a young man to come in and hold her hand for an hour while he listened to his MP3 player.

    So, can we save money in Medicare? I think the answer is clear.

  3. Shortly after the Clinton increases in the top two marginal income tax rates to 36% and 39.6% respectively took effect in 1993, I was in a meeting in Washington with then Secretary of the Treasury, Robert Rubin. During the Q&A period, he was asked why democrats agreed to cut the tax rate on capital gains from 28% to which it was raised under the 1986 Tax Reform Act to 20%. His answer was “because you have to give the Republicans some wins” if we’re going to complete a successful negotiation in the absence of a filibuster proof and very united majority in the Congress.

    Yes taxes need to go up on the wealthy and they will but it won’t even come close to solving our fiscal problems. Letting the Bush tax cuts expire for the top 2% raises about $80 billion a year while the country faces $1 trillion plus annual deficits as far as the eye can see. If President Obama were serious about getting our fiscal house in order over the intermediate to longer term, he would spend some political capital and take on some of his own constituencies from the AARP to trial lawyers. Most of the CAP proposals we should be doing anyway to get better value from our healthcare dollars even if we didn’t have a fiscal problem. To the CAP’s proposals, I would add safe harbor protection from failure to diagnose lawsuits for doctors who follow evidence based guidelines where they exist and I think Medicare beneficiaries who don’t execute a living will or advance directive or a POLST should pay an extra $5 or $10 per month in Medicare Part B premiums.

    Once Obama pockets his tax increases, why should Republicans or anyone else trust him and his liberal allies to get around to cutting spending or passing broad based tax reform later? If he cares about his legacy and expects to accomplish other parts of his agenda, he would be well served to rethink his approach in my opinion.

  4. drjvv-
    Thank you–and welcome to HealthBeat!
    The answer to your question is, I’m pretty sure, yes that reform will address exorbitant prices for hospital procedures.

    aAs I mentioned in the post, the people who put together
    CAP”s report on protecting seniors –and how to cut Medicare spending without hurting them– included
    folks close to the Obama administration.
    They are aware not only of the way hospitals over charge for in-patient services, but the way they over-charge for out-patient services.
    One of the CAPrecommendations that I didn’t have space to include here was this:
    “Since 2004 the volume of hospital outpatient services increased by 28 percent, which may indicate that Medicare payments are excessive. While some of that growth is due to patients shifting from inpatient to outpatient settings, much of it is from growth in highly-paid physician office visits at hospitals, which grew by 6.7 percent in 2010. Medicare pays 80 percent more for a 15-minute office visit at a hospital than at a physician office.”
    Then, here is the part that will of great interest to you:
    “As a general principle, Medicare payments for the same service should be the same whether the service occurs at a hospital or at a physician office. The current policy leads to wasteful spending without any difference in patient care, and it increases premiums and cost-sharing for beneficiaries. At a minimum, Medicare should equalize payments for 15-minute office visits over a transition period of three years, consistent with MedPAC recommendations.
    Estimated savings: $26 billion”
    in addition, the Affordable Care Act gives the Secretary of HHS the power to “reduce payments for overvalued services”
    This would include services provided in a particular setting.
    These are examples of how waste in Medicare spending will be cut under the Afforadble Care ACt.
    The CAP report–and the legislation itself– demonstrates that
    there are many people in Washington who actually understand where the waste is. Much of the Affordable Care Act follows, and acts on, the excellent reports that the Medicare Payment Advisory Commission (Medpac) released for a number of years before reform legislation passed Congrss.
    Medpac came out with these reports twice a year. They
    were long (200 to 300 pages each), detailed, spot-on –and rarely read by the media. (These days, reporters are rewarded for getting “scoops”– writing short pieces about what is happening NOW. Few are rewarded for doing in-depth reserach (i.e. reading 100-300 page reports.)
    When I first read the Afforable Care Act, I was impressed by how much of the information in those MedPac reports was
    incorporated in the legislation.
    There are people in Washington who actually do their homework, know what is wrong with our healthcare system, and what we need to do to fix it.
    Many of them serve on the staffs of the legislators who
    wrote the ACA. And within the White House, some of the people who were President Obama’s closest advisors
    were well aware of what was in the MedPac reports.

  5. Barry–
    Rubin was talking about what Democrats had to do in the face of “a very united majority in the Congress.”
    Today, Republicans have a majority only in the House, not in Congress. And it appears that this majority is not at all united. The divide between mainstream Republicans and the Tea Party extremists is becoming more and more apparent.. The Tea Party politicians are losing committee assignments. Within the party, Republicans are arguing with each other. (This seems ,to me a healthy sign. The “party discipline” of recent years stifled intelligent Republican voices.)
    Barry, you say that you would add “safe harbor protection” to the CAP proposals.”
    If you read the CAP proposals, you would know that they call for exactly that. Let m quote from CAP’s report:
    “A more promising strategy would provide a “safe harbor” to physicians. Physicians would be presumed to have no liability if they:
    “Document adherence to evidence-based clinical practice guidelines
    “Use qualified health information technology systems
    “Use clinical decision support systems that incorporate guidelines
    “Under such a system, the physician could use the safe harbor as an affirmative defense at an early stage in the litigation and could introduce guidelines into evidence to avoid a “battle of the experts” and the need to establish a clinical standard of care anew in each case. The patient could still present evidence that the guidelines are not applicable to the particular situation, and the judge would still determine their applicability. The patient could also use guidelines to show that the defendant was negligent.
    Evidence-based clinical practice guidelines should be developed and regularly updated by physicians. Under an initiative called “Choosing Wisely,”
    recently released guidelines on 45 common tests and procedures that might be overused or unnecessary.These include MRIs for complaints of back pain, routine stress cardiac imaging, imaging scans for simple headaches, and scans after fainting. Physicians who participate in developing guidelines should be completely free from any financial conflict of interest and should publicly disclose any other conflict of interest.
    Estimated savings: $5 billion”
    I didn’t include this proposal simply because I ran out of time and space. Also, it is a well-known and less controversial proposal than some–I assume it will definitely happen.Both conservatives and progressives should support it.
    Barry, we have been corresponding for a long time. It strikes me that you mainly read the proposals coming out of conservative think tanks. If you read some of the progressive proposals on heatlh care (like the CAP report) as well as reports from conservative think tanks, you might have more faith that the Obama administration may well do the right thing.
    You speak of the need to get our financial house in order.
    I agree,The deficit is a huge problem.
    But we have dug ourself into very deep financial hole over a period of many years. It will take time to dig out.
    Can you name a Republcian proposal that would get us out of that hole quickly? Or even in four years?
    I believe that getting our financial house in order will take many years, and will be achieved by doing a great many things that save $1 billion here, $2 billion there.
    Most importantly, we have to reduce unemployment. If more Americans are employed, they will pay taxes. This will add to revenues, and, utlimately, reduce the deficit.
    But businesses are not going to hire unless they have more customers buying more of their products. Today, many Americans are shopping less and paying down their debt. (Others are unemployed and shopping less because they have no income.)
    It is, of course, good that families are paying down debt. One of the big problems of the 1990s (that helped get us where we are today) was the “shop until you drop” ethos.
    But if consumers are trying to pay off debt–and are spending less–this means that businesses have no reason to expand and hire more workers.
    Thus, I would argue that government needs to create jobs.
    I’m not talking about “make work.” There are a great many things that need to be done that only government jobs will do:
    For example: Reduce class sizes in public schools. (In NYC so many teachers have been laid off that first-grade classes have expanded to 26 students. Common-sense tells you that one adult cannot give 26 six-year-olds the individual attention needed to teach them how to read. Different kids learn to read in different ways (phonics works for some; sight-reading for othrs, a differnt stratgy for other kis.) . They need to be divided into small groups, with the teacher moving among them. Ideally, a class would be made up of 18 students–or, perhaps 24, with a second, “para-professoinal” teacher.
    We need people working on gov’t sponsored projects to find alternative sources of enegry (and govt’ funding for private sector projects doing the same thing).
    Our cities and parks need gov’t workers keeping them clean, planting, etc
    We need more teachers for Pre-K public school classes.
    We need more gov’t funding for programs that would help the unemployed learn new skills that are needed in the private sector (or subsizing private sector companies to provide that training).
    I could go on– I’m sure you can think of many areas of sociiety where we need more workers. .
    Finally, I think your mistrust of President Obama goes too far.
    Barry, let me suggest that we wait and see what he does in 2013 and 2014 before deciding that there is no reason to trust him.


  6. Mike K.
    What happened to your mother sounds terrible.
    And I totally agree that some hopsices –most often “for-profit” hospices’ are over-charging Medicare. (When a medical facility is for-profit, there is, invitably a tension betwen doing what is best for patients and doing what is best for shareholders.)
    But since your mother was 96, I wonder if she didn’t need some of the palliative care that hospice care provides. Palliative care is not just for people who are dying. It is designed for anyone who is seriously ill and my be in serious pain.
    For her, the alternative would have been for you to take here home, or back to her own home. But were you or other family members in a position to care for her? Could you afford providing 24/7 care in her own home?
    For a 96-year-old being in an assisted-living-facility without
    hospice or palliative care may well mean being “warehoused'”, — either in pain, or drugged into a comatose state so that they are not in pain.
    This is not what any of us want.
    I realize that in your mother’s case, it seems that your were not offered altenatives that appeared at all reasonable . . .

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