Wednesday, January 7, 2009

A worrying sign: House Democrats kill Medicare warning provision

It's said that hypocrisy is vice's tribute to virtue – an acknowledgment of what we should do, even if we don't always do it. The Medicare funding "trigger" mechanism is a good example: while it hasn't accomplished anything to date, the fact that it even exists is hopeful. Yet this week House Democrats instituted new rules that would silence the Medicare trigger, allowing the House to continue ignoring rising Medicare spending.

The Medicare trigger requires that the president submit and Congress debate measures to slow Medicare spending if for the prior two years more than 45 percent of Medicare's total funding has come from general tax revenues, as opposed to payroll taxes or premiums paid by seniors.

The trigger is hypocrisy because it was included in the 2003 law that established the Medicare prescription drug ("Part D") program, a long-term budget-buster that was funded – yes – largely from general tax revenues. Yet the "tribute to virtue" part was that at least it forced Congress and the President to acknowledge that costs were rising and discuss ways to hold down those cost increases.

House Majority Leader Steny H. Hoyer – a fiscal conservative among the Democratic leadership, if that makes you feel any better – called the trigger "an ideologically-driven target based on a misleading measure of Medicare's financial health." Now, in one sense he's right, in that there's nothing inherent in Medicare's financing such that general revenue financing above 45 percent implies something different than general revenue financing of 44 percent, and so on.

But this points out one of the key problems with Medicare relative to Social Security, that Medicare has an almost unlimited call on general revenues while Social Security can rely only on payroll taxes. Whatever you may think of the Social Security trust fund, at least it provides the fiscal discipline that benefits can't exceed taxes over the long term. Medicare has a much more limited brake on spending, so it's not clear what a non-misleading measure of Medicare's financial health would be.

Given that, the level of general revenue financing in Medicare is a proxy for overall cost increases in the program, which everyone of good sense acknowledges are rising far faster than the federal budget can allow. While 45 percent general revenue financing is an arbitrary number, it at least forces Congress and the President to propose and debate solutions to rising Medicare costs.

The House can stifle the Medicare trigger based on its internal rules, without passing legislation. The trigger would still apply to President Obama, but Congressional Quarterly reports that the new administration may choose to ignore it.

While at Social Security I was peripherally involved with the Medicare Trustees Report, which is constructed alongside the Social Security report using the same staff and through the same meetings. While the Medicare trigger isn't directly Social Security-related, the seriousness with which Congress and the new Obama administration treat the trigger signals the overall level of importance they ascribe to entitlement reform. Sadly, it seems that one of the first steps of the new Congress will be to silence one of the few warnings regarding the looming fiscal gap. This hardly bodes well for overall entitlement reform.

Note: Ed Morrissey of Hot Air weighs in here.


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