New deficit-reduction plan seeks $600B in healthcare cuts

The former co-chairmen of the president's bipartisan fiscal commission have introduced a deficit-reduction proposal that calls for an additional $2.4 trillion in savings over 10 years, with roughly a quarter of those savings—or about $600 billion—coming from Medicare and Medicaid.

Erskine Bowles, former White House chief of staff in the Clinton administration, and former Sen. Alan Simpson (R-Wyo.) unveiled the framework as a way to show lawmakers that a so-called grand bargain to lower the nation's ballooning deficit is still within reach. Bowles and Simpson indicated that a more detailed plan is expected in the coming weeks to give others both on and off Capitol Hill a chance to comment on the proposal.

To reduce spending in the nation's healthcare entitlement programs, the plan calls for reducing provider payments, changing cost-sharing rules, increasing premiums for higher earners, and “savings from lower drug costs and adjustments to account for an aging population,” according to additional information provided by the Moment of Truth project, for which the former leaders of the president's National Commission on Fiscal Responsibility and Reform serve as co-chairmen. The Committee for a Responsible Federal Budget—composed of former chairmen and directors of congressional budget committees and federal budget offices such as the Office of Management and Budget and the Congressional Budget Office—oversees the project, which takes its name from the fiscal commission's late 2010 report.

In addition to about 25% in healthcare reductions, the plan calls for roughly another 25% in savings through tax reform. The remaining savings would come from a mix of mandatory spending cuts, more stringent caps on discretionary spending, and adopting the “chained” consumer price index for provisions in the federal budget that are indexed to inflation.

The proposal's recommendation for $2.4 trillion in savings is larger than what the Obama administration hopes to achieve. In his State of the Union address last week, President Barack Obama said lawmakers in the last few years have worked to reduce the deficit by $2.5 trillion, which he said is more than halfway to the goal of $4 trillion that economists say is required to stabilize the nation's finances. In releasing the proposal, Bowles and Simpson argue that saving another $1.5 trillion is not enough to keep the country's debt under control in the next decade.

They also acknowledged that their proposal to save an additional $2.4 trillion in savings is “more healthcare than Democrats would like and more revenue than Republicans support,” but that they believe it's the minimum amount necessary to “put the debt on a clear downward path.”

Separately Tuesday, the president said he hopes upcoming budget proposals from the House and Senate will reflect a balanced plan to reduce the federal deficit that includes both spending cuts and tax reforms. He also reiterated his call for Congress to pass a smaller package of spending cuts and tax reforms that would prevent the $85 billion in automatic spending cuts—known as the “sequester”—from kicking in as scheduled on March 1 if lawmakers don't reach a budget agreement by that date.

One lawmaker said the effect of the sequester shouldn't be overblown when spending on entitlements is the graver problem.

“It's discouraging to see the president complain about fiscal responsibility after the record of the last four years, including having done nothing to avert the approaching sequester, which the White House proposed and worked to enact in August 2011,” Sen. Chuck Grassley (R-Iowa) said in a statement. “The House of Representatives passed alternatives twice last year while the White House and Senate leadership did nothing,” he continued, adding that the impact of sequestration is small when compared with the financial impact that stems from committing to the nation's entitlement programs. “There has been no leadership from the White House and Senate majority to pursue structural reforms to those programs, either, despite the importance of saving Medicare and Medicaid for future generations,” Grassley said.