Brookings: Experts - Alice M. Rivlin

Why Reform Medicare? The President's and Other Bipartisan Proposals to Reform Medicare

Alice M. Rivlin — Tue, 21 May 2013 09:00:00 -0400

Mr. Chairman Members of the Committee:
Why reform Medicare? The main reason for reforming Medicare is not that the program is the principal driver of future federal spending increases, although it is. The main reason is not that Medicare beneficiaries could be receiving much better coordinated and more effective care, although they could. The most important reason is that Medicare is big enough to move the whole American health delivery system away from fee-for-service reimbursement, which rewards volume of services, toward new delivery structures, which reward quality and value. Medicare can lead a revolution in health care delivery that will give all Americans better health care at sustainable cost.

As this Subcommittee knows very well, health care in the United States is expensive and getting more so. Moreover, quality is uneven and much care is duplicative, wasteful, and uncoordinated. For many decades, however, reformers focused less on cost containment and quality improvement than on closing growing gaps in health insurance coverage. Now that near-universal coverage has been assured by the Affordable Care Act, attention should shift to improving quality and value of health care delivery for all and containing cost growth.

I recently had the privilege of co-leading (with former Senators Daschle, Domenici, and Frist) the Bipartisan Policy Center’s team that produced, A Bipartisan Rx for Patient-Centered Care and System-wide Cost Containment, in April. We reached consensus on a comprehensive package of reforms that span the entire health care system, with a particular focus on the Medicare program and federal health-related tax policy.

We believe that, if enacted together, these reforms will improve health care quality for patients and families and lower overall spending growth across the entire health care system. While budget saving were not our primary objective, we believe our Medicare reforms would achieve roughly $300 billion in net savings over ten years (2014-2023), and over the second decade (2024-2033) would result in another almost $1 trillion in budgetary savings to the Medicare program. These savings estimates are net of the cost of fixing the dysfunctional Sustainable Growth Rate (SGR) physician payment formula.

Our bipartisan foursome were not mavericks working in isolation. The major themes of our report are featured in two other recent bipartisan reports—an update of the Simpson Bowles Commission recommendations and a report from the Bending the Curve project at the Engelberg Center at the Brookings Institution—and many aspects appear in the President’s budget proposals. These reports suggest a bipartisan convergence on the importance of using Medicare and tax reform to lead the transition of the health system away from fee-for-service reimbursement toward quality and value-based care.

Broadly the recommendations of the Bipartisan Policy Center report include:

Preserve the guaranteed health coverage promised in traditional Medicare while adding more choices and protections for beneficiaries, especially low-income beneficiaries.
Modernize the benefit package for Medicare.
- Cap beneficiary cost sharing at $5315 (catastrophic protection).
- Combine the deductible for Parts A and B ($500) and make coinsurance more predictable.
- Exempt physician visits from the deductible and preventive care from cost-sharing.
Limit Medicare supplemental coverage, which beneficiaries will have less incentive to buy if they have catastrophic. [Restrict first dollar coverage--Medigap must have deductible of $250 and can’t pay more than half coinsurance and deductibles—includes Tricare and FEHBP].
Protect low-income beneficiaries—help with all cost sharing (A,B,D) up to 150% FPL
Raise Part B premiums for higher income beneficiaries—[lower thresholds for increased premium to $60,000 for singles and $90,000 for couples and index.]
Create “Medicare Networks” an improved version of the Affordable Care Organization demonstrations in the ACA. Medicare Networks would be provider led and enrollment based and would enable better coordinated care. Beneficiaries would have incentives to join (lower premiums and lower cost-sharing in network) and providers would have incentives to join (higher updates and shared savings.) Reimbursement to Medicare Networks would increasingly reflect measures of quality and value.
Replace SGR with better designed structure and update with MEI. Costs offset some of the savings, but worth it to get rid of dysfunctional SGR.
Increase competition among health plans in MA by implementing a new competitive bidding structure where that would result in lower payments and helping beneficiaries navigate plan choice on a user-friendly website. Allow MA plans to share savings with beneficiaries. Improve risk adjustment in MA and supplement better risk adjustment with reinsurance. Well executed reform of MA could accomplish many of goals of premium support without establishing a whole new system.
Limit the tax-favored treatment of expensive health insurance products. Cap the exclusion of employer-paid benefits as a substitute for the “Cadillac Tax.”
Under our plan beneficiaries would have three choices: traditional FFS Medicare; Medicare Networks reimbursed for performance on measures of quality and value; and Medicare Advantage (MA). We would have a fall back cumulative limit on the increase in Medicare spending for each choice. Doubt would be necessary.

This will not be an easy set of reforms to enact or implement. It will require sustained effort at both the federal and state levels, as well as in the private sector. But there is no simple way to change our complex, fragmented health care system. We believe enactment and implementation of these reforms would not only improve care and save taxpayer dollars in Medicare; it would do the same for the whole health care delivery system.

Authors

Alice M. Rivlin

Publication: United States House of Representatives Committee on Ways and Means, Subcommittee on Health

Image Source: © Jim Young / Reuters

The Affordable Care Act and Designing the District of Columbia's Health Benefits Exchange

Alice M. Rivlin — Mon, 13 May 2013 13:59:00 -0400

Before the Health Committee of the District of Columbia Council, Alice Rivlin encourages the Committee to implement the health benefits exchanges of the Affordable Care Act in order to provide universal affordable health care coverage. Explaining that the District has passed tests regarding Medicare and Medicaid, Rivlin describes the District's current health delivery system, explaining the landscape of health care carriers for groups and individuals and recommending that the health exchange become the sole venue for the purchase of individual and small business health insurance.

I am happy to testify on the bill before this Committee, “Better Prices, Better Quality, Better Choices for Health Coverage Amendment Act of 2013,” transmitted by Mayor Vincent C. Gray on behalf of the DC Health Benefit Exchange Authority. I strongly support the bill.

The federal Affordable Care Act (ACA), passed in 2010, is a major step toward an American health care system that covers almost everyone at sustainable cost. Implementation of the ACA is a long-sought opportunity to solve a disgraceful national problem—the fact that a large and growing share of the population cannot afford health insurance—as well as a chance to improve the quality and value of care delivered. As you know, the legislation was controversial at the national level, but the District welcomed it as an opportunity to realize our community’s goal of affordable health care coverage for all.

The District chose to comply with the ACA by creating its own health benefits exchange rather than letting the federal government do it. The District assembled a highly qualified Health Benefit Exchange Board, which recruited a strong professional staff and has implemented the ACA with energy and dispatch. Recently, the District’s exchange passed Phase Two testing with the Centers for Medicare and Medicaid Services. This indicates that the District is expected to be ready to enroll customers on October 1, 2013, and begin coverage on January 1, 2014. We should all be proud of the District for becoming a leader and role model in implementing the ACA, while some States have delayed and are behind schedule.

The exchange will require carriers to compete with one another by displaying qualified plans in transparent form in an electronic market place and allowing consumers to select the best plan for them. Some will receive federal income-tested subsidies to make plans more affordable. This is a win-win: DC residents will receive better health insurance at a lower cost and carriers will sell more insurance policies.

Designing the best exchange for the District has been challenging because DC’s health insurance market is small and highly concentrated. There are only four carriers one of which one controls more than three quarters of the individual and small group markets. The individual market is especially small—in part because of DC’s past success in reducing the number of uninsured residents through generous Medicaid eligibility and the creation of the Alliance. The individual market is estimated to fall below the 100,000 participants that the Urban Institute and others estimate to be the minimum size of the risk pool needed for an exchange to operate efficiently. In view of the small size and high concentration of the market, the DC Health Benefit Authority recommended, and the Council supported, merging the individual and small group markets after a transition period. Merging the markets recognizes that separate exchanges for the individual and small group markets would have too few carriers and too few enrollees to achieve the stability and efficiency that can be achieved in a merged market.

Now the Council is considering whether to make the exchange the sole venue for the purchase of individual and small business health insurance in the District. We believe that this measure will maximize competition, transparency, and the insurance choices available to consumers. Conversely, retaining a separate market outside the exchange will reduce the risk pool below critical size and invite carriers to attempt to attract younger, healthier individuals and employer groups outside the exchange, leaving higher risks in the exchange. In a small market with a dominant insurer, it is essential that the exchange risk pool be as inclusive as possible, both to stabilize the exchange—which is the only source of federal subsidies for District residents with modest incomes—and to maximize transparency and competition.

These design decisions are difficult, but, on balance, it seems wise to require that all DC individual and small business plans be purchased on the exchange with a single risk pool, to allow carriers to offer as many different plans as they want on the exchange, and to work hard to make the exchange as transparent and user friendly as possible. Moreover, the Board’s transition plan carefully balances the goal of full and speedy implementation with the needs of individuals and small business. The transition plan will allow small businesses to enter the health exchange over a two-year transition period, permitting small businesses to wait until the market settles should they feel the need.

Over the past couple of decades DC has gone from a city with a shamefully inadequate health system to a leader in provision of affordable health coverage and improving access to good quality care. We can all take pride in the steps DC has made to take advantage of the opportunity offered by the ACA to move to universal affordable coverage by acting quickly to implement it competently and expeditiously.

Thank you for the opportunity to speak today.

Authors

Alice M. Rivlin

Publication: The Health Committee of the DC Council

Image Source: © Joshua Roberts / Reuters

Bending the Curve: Person-Centered Health Care Reform - A Framework for Improving Care and Slowing Health Care Cost Growth

Mon, 29 Apr 2013 13:12:00 -0400

Executive Summary:

We propose a framework for health care reform that focuses on supporting person-centered care. With continued innovation toward more personalized care, this is the best way to improve care and health while also bending the curve of health care cost growth.

Our health care system holds great promise. As a result of fundamental breakthroughs in biomedical science, improvements in data systems and network capabilities, and continuing innovation in health care delivery, care is becoming increasingly individualized and prevention-oriented. The best treatment for a patient involves not just specific services covered under traditional approaches to health insurance financing, but also includes new technologies and new kinds of care and support at home and beyond traditional health care settings. These advances require health care providers to work with patients and their caregivers to target increasingly sophisticated treatments and to coordinate care effectively ways that works best for each patient.

Our report’s person-focused reforms aim to support these changes in care—not as an afterthought or as an addition to our health care financing and regulation, but as the core goal. Instead of having to work around fee-for-service (FFS) payments and regulations that can complicate getting the highest-value care in each case, providers and patients will be able to receive more support for the specific approaches to care delivery that can make the most difference. The support comes from aligning reforms in provider payment, benefit design, regulation, and health plan payment and competition. To avoid short-term disruptions, our systematic framework involves a clear path that builds on existing reforms in the public and private sector, supports transitional steps to assist providers, and includes close evaluation and opportunities for adjustments along the way. While our primary goal is better health through better care, we estimate that our reforms would achieve an estimated $300 billion or more in net federal savings in the next decade, and provide a path to sustaining per capita cost growth that is much more in line with per capita growth in Gross Domestic Product (GDP). After the proposed reforms are implemented in the coming decade, long-term savings from achieving better health and sustainable spending growth will exceed $1 trillion over 20 years. Our proposals can be scaled up or down, and can also be combined with other proposed reforms to achieve additional reductions in health care costs. Our approach enables Congress to focus on overall cost, quality, and access goals that are very difficult to address under current law – so that whatever the spending level, that spending will do more for health.

These issues of health care quality and cost must be addressed. If a clear framework like ours is not implemented, the alternative is likely to be continued reliance on short-term cost controls, including across-the-board cuts in payments like sequestration, or delays and restrictions in both needed coverage updates for vulnerable populations and new types of innovative care—perpetuating large gaps in quality of care.

Our proposals represent an alternative to such care disruptions, cost-shifting, and threats to more innovative, person-focused care. We include proposals for Medicare, Medicaid, and private health insurance. We also propose a set of system-wide regulatory reforms and other initiatives, including antitrust and liability reforms. While some of these proposals are specific to particular programs and regulations, they are all grounded in our core goal of supporting quality care resulting in lower cost. This means a clear path for moving away from FFS payments and benefits and open-ended subsidies for insurance plan choices toward a direct focus on supporting better care and lower costs at the person level. Our proposals encompass significant reforms – such as modifications in Medicare payment mechanisms and benefits, and a change in the tax exclusion for employer-provided health insurance. The proposals reflect ideas that have gathered broad support in the past, but also include new approaches for addressing some of their shortcomings. Implementing our reforms together enables them to reinforce each other and create much more momentum for improving care while bending the cost curve.

Download the full report » (PDF)

Downloads

Image Source: Jim Young / Reuters

How to Build a Better Health-care System

Tom Daschle, Bill Frist, Pete V. Domenici and Alice M. Rivlin — Thu, 18 Apr 2013 07:00:00 -0400

The four of us came together to change the conversation around how to improve health care and constrain cost growth. What we learned is that, until better care is prioritized over more care, our nation will continue to face a problem with health-care costs. The good news is that, through thoughtful policy, health-care practitioners can be encouraged through rewards to focus far more on what is best for their patients and less on the number of tests and procedures they can order. The even better news is that such a health-care vision can not only produce better care but also cost less.

With the Bipartisan Policy Center, we will release a report Thursday with more than 50 recommendations to achieve the critical goal of improving the quality and affordability of care for all Americans while containing high and rising health-care spending. This report is the culmination of nearly a year of work, including stakeholder outreach, thorough research and substantive analytics to quantify the impact of our proposed policies.

Too often we in Washington talk about health care as though it is little more than a line item on a budget table. Those of us who have experienced the best of health care know that is not how care should be delivered or policy crafted in this most personal of issues. Our country can achieve a higher-value health-care system—meaning both higher quality and greater efficiency.

Health-care cost drivers are complex and interwoven, but the most problematic ones we identified are the inefficiencies, misaligned incentives and fragmented care delivery in the current fee-for-service reimbursement system. To address these, we seek to promote coordinated and accountable systems of health-care delivery and payment, building on what has proved successful in the private and public sectors. Organized systems of care emphasize the value of care delivered over the volume of care. These systems are often better able to meet patients’ needs and desires and are able to effectively reimburse providers and practitioners for delivering high-quality care.

In all our proposals, we sought to avoid simple cost-shifting as a means to generate federal budgetary savings, instead promoting transparency and protecting patient choice. We also focused on reforms that will incite transformation across the health-care system, not limited to Medicare. We believe, however, that the power of Medicare can be leveraged to lead the way in transforming U.S. health care.

In brief, our recommendations:

Preserve the promise of traditional Medicare while adding more choices and protections for beneficiaries, including accountable systems of care and a stronger, more competitive Medicare Advantage program.
Strengthen and modernize the traditional Medicare benefit, including adding a catastrophic cap, rationalizing cost-sharing and premiums and expanding access to assistance programs for those with low incomes.
Reform the tax treatment of health insurance to limit the taxfavored treatment of overly expensive insurance products.
Empower patients by promoting transparency that is meaningful to consumers, families and businesses, and streamline quality reporting.
Advance the nation’s understanding of potential cost savings from prevention programs, through support for research and innovation on effective strategies to address costly chronic conditions.
Offer incentives to states to promote policies that will support a more organized, value-driven health-care delivery and payment system, such as supporting medical liability reform and strengthening their primary-care workforce.

All of these policies are designed to improve the quality and value of our nation’s health care. That is where every health-reform effort should start. The savings that we achieved — $560 billion over 10 years in debt and deficit reduction — is the outgrowth of our work, not the goal.

No single set of recommendations can fix the health-care system or the nation’s debt and deficit crisis overnight, but we hope this report can start a constructive, pragmatic dialogue among policymakers and political leaders. By presenting this report to federal, state and private-sector leaders, we hope to promote a collaborative dialogue and a shared understanding of strategies to put our nation’s health system, as well as its economic outlook, on a sounder, healthier and more sustainable path.

Authors

Tom Daschle
Bill Frist
Pete V. Domenici
Alice M. Rivlin

Publication: Washington Post

Image Source: © Jim Young / Reuters

Around the Halls: The Obama Administration's Budget Release

Alice M. Rivlin, Isabel V. Sawhill and Bill Frenzel — Wed, 10 Apr 2013 12:00:00 -0400

With the release of the Obama administration's FY 2014 budget, Brookings experts weigh in on the president's proposals:

Alice Rivlin, Senior Fellow, member of the President’s Debt Commission:

The President’s budget offers specific proposals for creating jobs and investing in productivity while simultaneously reining in the rising debt. It creates the opportunity to jumpstart serious bipartisan negotiation on how to accelerate the recovery in the context of balanced comprehensive tax and entitlement reform that will put the budget on a sustainable path for the long-run future.

Isabel Sawhill, Senior Fellow and Co-Director of the Brookings Budgeting for National Priorities Project:

This budget begins the difficult process of reallocating funds from more affluent seniors to lower-income families and their children. Much more needs to happen on this front over the coming decade but the President's proposals to limit spending on Medicare and tax-favored forms of retirement saving for the most affluent, slow the growth of social security benefits for non-vulnerable seniors and invest in Pre-K programs are all steps in the right direction.

Read Sawhill’s related blog post: The President’s Budget: A Good Strategy for Difficult Times

William Frenzel, former House Budget Committee Ranking Member and Brookings Guest Scholar:

It does not pass muster as a Budget because it does not get us where we want to be in ten years. But, as an invitation to Republicans to re-engage in ‘grand bargain’ discussions, it demonstrates real leadership by the President.

Authors

Image Source: © Gary Cameron / Reuters

Growing the Economy and Stabilizing the Debt

Alice M. Rivlin — Thu, 14 Mar 2013 09:00:00 -0400

Chairman Brady, Vice Chairman Klobuchar, and members of the Committee:
This hearing is called: “Flirting with Disaster: Solving the Debt Crisis” I would like to suggest an alternative title: “Avoiding Disaster: Growing the Economy and Stabilizing the Debt.” I make this suggestion because I believe strongly that future American prosperity requires bipartisan cooperation to achieve two goals at once:

Faster economic growth that will create more jobs and bring the unemployment rate steadily down at least to the 5-6 percent range.
A sustainable long-run budget plan that will halt the projected rise in the debt/GDP ratio and put it on a downward trajectory by the end of the decade.

The two goals reinforce each other and neither can be achieved without the other. Weak economic growth—or worse, sliding back into recession—will reduce revenues and make it much harder to reduce or even stabilize the ratio of debt to GDP. But the prospect of debt growing faster than the economy for the foreseeable future reduces consumer and investor confidence, raises a serious threat of high future interest rates and unmanageable federal debt service, and reduces likely American prosperity and world influence.

Stabilizing and reducing future debt does not require immediate austerity—on the contrary, excessive budgetary austerity in a still-slow recovery undermines both goals—but it does require a firm plan enacted soon to halt the rising debt/GDP ratio and reduce it over coming decades. Financial markets will not provide advance warning of when such a plan is required to avert negative market reactions. At present the United States appears to have unlimited access to world markets at low interest rates But this market confidence could evaporate quickly, possibly because of developments elsewhere around the world and beyond our control. The sooner we enact such a plan, the better the prospects for our economy. There is no valid argument for delay.

Putting the budget on a sustainable path and reducing the debt/GDP ratio will require bipartisan agreement on entitlement reform that slows the growth of health care spending and puts Social Security on a firm foundation for future retirees. It will also require raising additional revenue through comprehensive tax reform. I have spent much of the last several years participating in two high-profile bipartisan groups that crafted plans to grow the economy and stabilize the debt—the Simpson-Bowles Commission and the Domenici-Rivlin Task Force. That experience convinced me that bipartisan problemsolving is possible when participants are willing to confront facts objectively, listen to each other, and seek common ground. An updated version of Domenici-Rivlin is attached (For the attachment, download the testimony. -Ed.).

Although detailed recommendations of the two groups differed, each involved three elements: (1) restraining discretionary spending; (2) reducing the growth of Medicare, Medicaid and stabilizing Social Security: and (3) comprehensive tax reform to cut spending in the tax code and raise additional revenue. Indeed, the arithmetic of the problem makes all three elements necessary. More than enough discretionary spending restraint has already been accomplished. The task remaining is to find agreement on an acceptable set of entitlement and tax reforms.

Why Sequestration is Bad Policy and Should be Replaced

Sequestration is a mindless across-the-board cut designed to be such bad policy that it would never happen, and they should not be continued. Cutting discretionary spending will add to the restraining effect that the declining federal deficit is already having on the still-slow recovery, will reduce job creation, and will possibly even trigger a new recession. Domestic discretionary spending has already been reduced by more than the two bipartisan groups recommended and is scheduled to fall to historic lows. Such low levels of domestic discretionary spending endanger the government's ability to perform essential functions that the public wants and needs. Indeed, higher investment in science, education, and modern infrastructure is needed to foster future productivity and job creation. While savings in defense can be made over time, they should result from serious planning, not meat-ax proportional cuts regardless of priorities. Since discretionary spending is not a driver of future deficits, cutting it contributes next to nothing to slowing the projected increases in spending that will push the debt/GDP ratio upward over the next several decades. Sequestration weakens both the economy and the government's ability to do its job. It should be replaced by gradually phased in tax and entitlement reforms that will stabilize the debt. I am concerned that Chairman Ryan's budget blueprint released on Tuesday continues to target nondefense discretionary spending, cutting it substantially more than the current sequester.

Why Entitlement Reforms are Necessary Now

Over the coming decades federal spending is projected to increase faster than the economy can grow, because a tsunami of older citizens are reaching retirement age and living longer than their predecessors, and spending for health care, disproportionately consumed by seniors, is likely to rise faster than other spending. This combination of demographics and health spending growth makes Medicare, Medicaid and Social Security drivers of unsustainable federal spending in future years. Social Security should be the easiest to reform, because it involves only money—without the complexity of health care delivery—and requires fairly minor, well understood tweaks in benefits and revenue to regain fully funded status. Social Security is an extremely successful program, which keeps millions of seniors from destitution in old age. Workers now in the labor force need to know that Social Security will be there for them when they retire or if they become disabled and that they can plan their retirement around it. The Domenici-Rivlin Task Force recommended indexing benefits to longevity (rather than further increasing the age of full retirement beyond 67); adding a bend point in computing initial benefits to reduce payments to high income people, switching to a chained CPI for indexing benefits, while protecting the lowest income and most aged recipients; and raising the cap on wages faster than under current law. Taken together, the Domenici-Rivlin Social Security recommendations increased benefits for low-income seniors while reducing those for affluent beneficiaries in order to achieve solvency.

Enactment of such a bipartisan package now would reassure current workers, demonstrate that our democracy works to solve problems before they reach crisis proportions, and contribute to stabilizing the debt. Fixing Social Security would send a strong signal to the financial markets that the nation was addressing its long-term budget problem, and, because its effects would be felt in future years, it would not threaten the current economic recovery.

Some have suggesting waiting until the Social Security Trust Fund runs out of money around 2033 before instituting reforms. This would be shortsighted and irresponsible. Workers who will be retiring in 2033 are already in their mid-forties. We owe it to them to fix Social Security now, so that they can plan their retirement with the confidence that their Social Security benefits will be there. This motivation for early action is even more important than the modest contribution that a Social Security fix will make to stabilizing the debt.

Medicare raises more complex issues than Social Security, but bipartisan compromise to slow Medicare growth without depriving seniors of needed health care is also possible. Indeed, sensible reforms of the Medicare reimbursement regime could lead the way to slowing the unsustainable growth of spending in the whole healthcare sector, relieving pressure on state, local, business, and family budgets¡Xnot just federal programs.

American health care is expensive compared to that in other developed nations and its quality is uneven. Part of the reason is that so much health care is compensated on a feefor- service basis, which encourages providers to deliver more services, but does not reward quality, efficiency, or positive health outcomes. Medicare is the most important payer of health providers. It should be possible to shift the Medicare reimbursement regime toward bundled payments for episodes of care, reimbursement of Accountable Care Organizations, and capitated payments to integrated health systems—all designed to reward delivery of effective care, meeting quality standards, and keeping beneficiaries healthy.

There are two possible approaches to improving the performance of health providers along these lines. One is to change incentives in traditional Medicare by regulation. The other is to foster competition among health plans on a regulated exchange or market place. In the original Domenici-Rivlin plan we recommended doing both¡Ximproving traditional Medicare by regulation, but also introducing the option of competition among integrated health plans in a premium support model. Subsequent analysis has suggested that it may be possible to introduce the competitive element more smoothly by ensuring that Medicare Advantage plans compete in a more transparent market place with effective incentives to improve health outcomes and lower costs. The recent slowing of healthcare spending suggests that it may be possible to keep the increase in spending close to the rate of growth of GDP without enforcing a cap.

Changing health care reimbursement and delivery practice will take time. That is why it must start soon if it is to make the necessary future contribution to stabilizing and eventually reducing the debt/GDP ratio.

Why Tax Reform Must Raise Additional Revenue

Even extremely successful efforts to deliver health care more efficiently and slow the growth of health spending will not make it possible to absorb the coming avalanche of seniors without additional revenues. Benefits for older people are already crowding out investment in knowledge and skills of young people and modernization of infrastructure needed to increase future productivity.

Our tax code contains enormous amounts of spending that is poorly designed for its ostensible purpose, disproportionately benefits upper-income people, and narrows the tax base. Reducing spending in the tax code could raise additional revenue at lower rates and make the tax system more progressive at the same time. Both Simpson-Bowles and Domenici-Rivlin recommended drastic comprehensive reform of both the individual and corporate income taxes to broaden the base and lower the rates.

The Domenici-Rivlin plan did away with almost all deductions, exclusions and other special provisions. It had two individual income tax rates—15 and 28 percent—gradually phased out the exclusion of employer-paid health insurance from taxable income, taxed capital and earned income at the same rates, converted the home mortgage and charitable deductions to credits at the 15 percent rate, and retained earned income and child credits. The result was a fairer, simpler, more pro-growth tax system that increased progressivity and raised more revenue. Such a drastic revamping of our current code would have multiple opponents, but might be easier to accomplish than a more incremental approach—which could have as many losers but no winners, without nearly as much of the potential benefit for the economy.

Importance of Both Growth and Debt Stabilization

Those of us who advocate near-term action to curb future debt increases have been called “debt scolds” and “deficit hawks.” We have been unfairly accused of favoring immediate austerity and not understanding the need for accelerating job growth and improving productivity. But pursuing the double goal of growth and debt stabilization is possible, provided we get the timing right. We should not have austerity now, but we should take immediate steps to slow the growth of entitlement spending in the future and raise more revenue through a more progressive and pro-growth tax system.

Downloads

Avoiding Disaster: Growing the Economy and Stabilizing

Authors

Alice M. Rivlin

Publication: Joint Economic Committee, U.S. Congress

Image Source: © Kevin Lamarque / Reuters

Sequester Was Intended To Be Bad Policy, Let's End It

Alice M. Rivlin — Tue, 26 Feb 2013 00:00:00 -0500

Parents and preschool teachers know what to do when kids are fighting. First, halt the damage. Then, stop the blaming—it doesn’t matter right now who hit whom first. Then, propose a constructive project—help me clear the plates or rake the leaves—that both sides can turn to right away. Usually peace is restored and the kids work together.

It doesn’t matter who first thought of this dreadful sequester. It was intended to be bad policy—mindless automatic across-the-board cuts in defense and domestic spending that both sides agreed should not happen. The obviously stupid cuts were supposed to force Republicans and Democrats to hammer out a debt reduction plan that both sides could accept. In the absence of an adult in the room, the kids thought they could make themselves behave by designing this procedural gimmick. Both sides voted for it and the President signed the bill. It seemed like a good idea at the time, but it didn’t work out. It happens.

Now the public must take over the role of adult-in-charge and send three loud, clear messages. First, stop the damage! The sequester will cut federal spending sharply enough to endanger the economic recovery that is finally picking up speed. It will cost jobs—not just federal jobs, but teachers and firefighters and private sector workers across the country. The federal budget is already restraining economic growth as the deficit recedes from its recession highs and the wars wind down. More austerity will stall job growth, as similar policies have in Europe.

The sequester will also endanger government services that citizens depend on from air traffic control to national parks to troop support. Even those who believe government spending should be reduced quickly want to cut programs they deem wasteful or low priority, not everything equally. Of course, that was exactly the point of the sequester: to force a more sensible approach.

Second, stop the blaming now! It doesn’t matter who thought of this sequester. Just fix it! We also don’t want any more squabbling about which party is most responsible for the fact that the budget is on an unsustainable path for in the longer run.

The prospective rise in federal debt looming at us in coming decades is not the fault of either political party. The huge Baby Boom generation is retiring, average citizens are living longer in retirement, health care spending per person has been rising faster than other spending (because health care is more effective than before and often inefficiently delivered), and our tax code is riddled with backdoor spending that reduces revenues. These facts together mean that until we modify our current policies federal debt will rise faster than our economy can grow, endangering future prosperity. The policies that matter most for future debt and need to be modified—Medicare, Medicaid, Social Security, and the tax code—were broadly supported by both political parties when conditions were different. The only sin here is widely shared short-sightedness. Pointing partisan fingers now only makes it harder to agree on solutions.

The third message is: get to work! You don’t need any more commissions, task forces, “super committees,” or bipartisan gangs to tell you what to do. All of these groups agree that small gradual changes in the future growth of federal health care and retirement benefits combined with tax reform that produces more revenue are necessary to keep future debt from growing faster than the economy and put it on a downward path. The sooner you act the smaller and more gradual these changes can be and the easier they will be to absorb. Stop scaring people, especially senior citizens, by exaggerating the harm the other side’s solutions would cause—that is part of the blame game we want stopped.

The public elected you to solve problems and there are plenty to be solved: creating more and better jobs, reforming our immigration laws, addressing climate change, and controlling gun violence. But none of this will happen if politicians keep lurching from one confidence-destroying budget crisis to another. So, stop the damaging sequester, go silent on blame, and get to work on a sensible budget deal that will strengthen the recovery and put the debt on a sustainable path. It is not that hard!

Authors

Alice M. Rivlin

Publication: Real Clear Markets

Warriors Against Waste: Cutting Defense Spending through Reform?

Thu, 24 Jan 2013 09:30:00 -0500

Event Information

January 24, 2013
9:30 AM - 11:30 AM EST

Falk Auditorium
Brookings Institution
1775 Massachusetts Avenue, N.W.
Washington, DC 20036

The U.S. Department of Defense has been described as “bloated” by the man nominated to be its next secretary, former Senator Chuck Hagel. Many share this view. However, achieving reforms is more difficult than diagnosing the problem, and estimating how much can realistically be saved is particularly challenging. Yet, rough approximations are needed as Congress and President Barack Obama seek to determine how much more, if at all, the defense budget might be reduced over the next ten years as part of a possible deal to avert the fiscal cliff before its new March 1 deadline.

On January 24, the 21st Century Defense Initiative at Brookings hosted a discussion on the future of the U.S. defense budget, with a particular focus on reforms and efficiencies. Brookings Senior Fellow Alice Rivlin delivered a keynote address on the nation’s broader economic challenge and deficit reduction effort. Following her remarks, a panel discussion addressed topics such as reforms of military compensation processes; weapons acquisition practices; weapons maintenance practices; base infrastructure; information technology systems; and Department of Defense management.

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Warriors Against Waste: Cutting Defense Spending through Reform?

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Make Changes to Social Security Now to Prevent Future Debt

Alice M. Rivlin — Thu, 03 Jan 2013 10:33:00 -0500

We should act now to ensure that Social Security is solidly financed for future beneficiaries. The sooner we act, the smaller the changes in benefits and revenue need to be. Reducing future debt is just an extra benefit of preserving Social Security.

Social Security is a hugely successful program that has kept millions of older or disabled Americans from penury and dependency. But its solvency is threatened. As longevity increases and all those boomers retire, there won’t be enough workers paying into the system to support projected benefits.

We have to increase revenue and reduce scheduled benefit growth to keep the system solvent. If we act quickly, the changes can be phased in gradually and need not affect those already retired or close to retirement.

A balanced package should include increasing revenue by raising the maximum earnings subject to payroll tax, as well as progressive reductions in the growth of future benefits. High earners should get less and low earners a bit more.

Any increase in future retirement ages should account for the greater difficulty of continuing to work in physically demanding occupations. More accurate calculation of the cost of living (the chained C.P.I.) would slow the increase in benefits slightly. Adverse effects on low-income or very aged retirees could be offset by increasing the minimum benefit and adding an increase at, say, age 85. The improved index would make a more general contribution to debt if it applied to tax brackets and other spending programs.

Social Security currently adds to debt, because it pays out more benefits than it receives in taxes. While it accumulated credits when the higher ratio of workers to retirees was bringing in excess funds, Treasury has to borrow to redeem these credits.

As more boomers retire, Social Security will add increasingly to debt. By about 2033, the credits will be exhausted and benefits will have to be cut sharply. Because workers retiring in 2033 are already working and should plan for their retirement, we owe it to them to phase the necessary changes in gradually and avoid the sharp drop.

Preserving Social Security and restraining future debt are both important to American well-being and reinforce each other. There are powerful arguments for doing both — either separately or together.

Authors

Alice M. Rivlin

Publication: The New York Times

Lost Opportunity for Jobs and Growth

Alice M. Rivlin — Fri, 28 Dec 2012 12:30:00 -0500

Will 2013 be a great year—the year economic recovery picked up steam and our paralyzed democracy began to function constructively again? Or will it be a year of tragically unnecessary lost opportunity? The choice is up to our newly re-elected leaders and the public they represent.

The pace of economic growth and job creation appears poised to accelerate in 2013. Housing markets are finally reviving with a significant number of new starts and rising home prices in many areas. New life in the housing market is good news for sellers of home furnishings, as well as for consumer confidence and job mobility. State and local governments, whose fiscal woes and layoffs have been dragging down other sectors, have turned the corner and returned to solvency. Some manufacturers have tired of dealing with the strains of out-sourcing and are starting to bring jobs home. America’s much-vaunted ingenuity and entrepreneurial talent gives no evidence of flagging. Even a devastating recession could not squelch exploding connectivity and the social media revolution. Banks and companies are holding plenty of cash they need to put to work. The Fed is guaranteeing rock-bottom interest rates for the foreseeable future. Inflation is subdued. Energy prices are down and domestic production is surging. Most signs point to better times ahead—except for a dysfunctional government threatening to make two disastrous mistakes.

The first mistake would be to overwhelm the positive forces by administering the strong dose of fiscal austerity inherent in the tax increases and mindless spending cuts of the “fiscal cliff.” Austerity is absolutely the wrong prescription for a still-fragile recovery—how many European examples do we need to learn that lesson? Moreover, proving that the U.S. government is so paralyzed by partisan warfare that it is unable to avoid crashing into its own artificial barrier will undermine confidence of consumers, investors, and markets here and abroad. Even though the economic consequences of going over the “cliff” would be small if a deal were reached before most of the tax increases and spending cuts took effect, the psychological fall-out could be dire. Why should anyone believe that failure to avoid the “cliff” would not be followed by another debt ceiling debacle and trench warfare over appropriations when the continuing resolution funding government agencies runs out in March?

Even if the “cliff” crisis is avoided by cobbling together a hasty deal, the more serious mistake would be failure follow-up with policies to keep national debt from rising faster than the economy can grow. Remember that the “cliff” was an artificial crisis designed to force political leaders to agree on a compromise that would stabilize future debt. The fundamental danger to future prosperity is that federal spending, driven by promises made long ago to a rapidly growing number of retirees with rising health care costs, will overwhelm inadequate revenues and force the government to borrow more and more every year.

We have time to fix the debt problem—gradually and sensibly—if we start now. It would be really stupid to get past the artificial problem and ignore the real danger. But to get the real job done the two warring political parties will have to stop blaming each other and hammer out a serious solution together. Getting past the “cliff’ is just the first indication of whether we have elected a set of leaders capable of solving problems.

Authors

Alice M. Rivlin

Steps to Fiscal Responsibility

Alice M. Rivlin — Fri, 14 Dec 2012 10:11:00 -0500

While avoiding the “fiscal cliff” is essential to near-term recovery and job growth, it is just the first step to restoring sustained prosperity in America. It would be catastrophic if negotiations between the president and Congress succeeded in avoiding the cliff but failed to address the fundamental threat of projected debt rising faster than the economy can grow.

We must have fundamental tax reforms that raise revenues and entitlement program reforms that slow the growth of healthcare spending and preserve Medicare and Medicaid for those who need them over the long run.

The “fiscal cliff” is an artificial barrier designed to pressure political leaders to get the nation’s budget on a sustainable path. The worst possible lame-duck deal would be a small one that avoids the cliff and thus removes pressure from policymakers to construct a much larger, multi-year agreement next year. Such a deal would do nothing for long-term fiscal stability.

The disaster in Europe should be teaching us two lessons: Short-run austerity is the wrong prescription for growing weak economies, and countries that allow their debt to rise out of control get into serious trouble. We must avoid the austerity of the cliff but stabilize our long-run debt increase while we still have time to do so in an orderly way. Federal Reserve Chairman Ben Bernanke was crystal clear on these points at his news conference earlier this week. America needs both a short-term deal that avoids the immediate economic damage of going off the fiscal cliff and a long-term deal that restores fiscal sanity.

When asked by the media which was more important, the chairman said “both equally.”

One of the most important elements of the Bipartisan Policy Center’s framework for a lame-duck agreement is a provision that would pressure the 113th Congress through codification of the budget process’ reconciliation mechanism.

The Bipartisan Policy Center’s framework for a major debt agreement has three parts, which could be enacted this month. First, Congress would make a down payment, a set of small, but meaningful, cuts to entitlement spending and reforms that would raise revenue. Second, Congress would establish an accelerated regular-order process that would provide the time necessary to develop major, revenue-raising tax reforms and structural entitlement changes that would slow long-term spending growth, then protect these reforms from procedural dangers like endless amendments and the filibuster. Finally, it would include a backstop, a fallback policy that would go into effect if Congress cannot reach agreement in 2013. A backstop should target the unaddressed drivers of our debt, which include tax expenditures and health entitlement spending.

If, as currently rumored, senior members in the House and Senate in both parties reject this kind of reconciliation mandate, they can doom truly fundamental tax and entitlement reform.

Imagine what a Medicare reform bill or a fundamental tax reform bill would look like after two or three months’ debate on the Senate floor without the time protections of reconciliation or a similar process.

The Bipartisan Policy Center’s Debt Reduction Task Force, which I co-chaired with former Senate Budget Committee Chairman Pete Domenici (R-N.M.), has always emphasized what Bernanke made clear: We must have a short-term down payment that avoids the cliff; a mechanism that compels action by Congress on taxes and entitlements next year; and a long-term plan that stabilizes our national debt as a proportion of our gross domestic product.

A bad short-term deal that allows policymakers to avoid the harder long-term decisions would be a step backward. It might make Wall Street happy for a moment or two, but it will mean serious risk to the prosperity of the American people in the long run.

Authors

Alice M. Rivlin

Publication: The Hill

Civil Conversations: Restoring Civility to the Debt Discussion

Tue, 09 Oct 2012 10:00:00 -0400

Event Information

October 9, 2012
10:00 AM - 11:30 AM EDT

Falk Auditorium
Brookings Institution
1775 Massachusetts Avenue NW
Washington, DC 20036

As political discussion has devolved more and more into hyperbole and vitriol over the past few years, solutions to the critical issues that face the nation - including our mounting deficits and national debt - have proven elusive. How to bring this discussion back to substantive issues, as opposed to partisan rhetoric?

On October 9, as part of her Civil Conversations Project, Krista Tippett of American Public Media's radio show On Being moderated a discussion at Brookings with Senior Fellow Alice Rivlin, former director of the Office of Management and Budget and Congressional Budget Office and Pete Domenici, former Republican senator from New Mexico and a senior fellow at the Bipartisan Policy Center. Both renowned for their work on budget issues, they have created a bipartisan alliance, and discussed what they have learned, what is happening below the radar of partisan rancor, and what is at stake as the nation grapples with the debt crisis and political stalemate. Brookings Managing Director William J. Antholis delivered opening remarks. After the discussion, panelists took questions from the audience.

You can follow the conversation on this event on Twitter at hashtag #CCP2012.

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Brookings: Experts - Alice M. Rivlin

Why Reform Medicare? The President's and Other Bipartisan Proposals to Reform Medicare

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The Affordable Care Act and Designing the District of Columbia's Health Benefits Exchange

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Bending the Curve: Person-Centered Health Care Reform - A Framework for Improving Care and Slowing Health Care Cost Growth

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How to Build a Better Health-care System

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Around the Halls: The Obama Administration's Budget Release

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Growing the Economy and Stabilizing the Debt

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Sequester Was Intended To Be Bad Policy, Let's End It

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Warriors Against Waste: Cutting Defense Spending through Reform?

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Make Changes to Social Security Now to Prevent Future Debt

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Lost Opportunity for Jobs and Growth

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Steps to Fiscal Responsibility

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Civil Conversations: Restoring Civility to the Debt Discussion

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