Morning Bell: The Two Budget Stories Everyone Is Missing

Conn Carroll /

Except for the Wall Street Journal and Sydney Morning Herald, none of the paper’s covering President Bush’s budget proposal want to mention the fact that $150 billion of the $400 billion projected deficit for 2008 is going to come from the economic stimulus package now being debated by Congress (and if the Senate gets its way, those numbers will be even worse). Instead most coverage of budget proposal focuses on “major cuts in payments to healthcare providers” referring to the President’s $178 billion savings in Medicare spending over the next five years. But even here, the media underplay the threat Medicare’s explosive growth is to our long term fiscal health. Luckily a relatively unknown provision of the 2003 Medicare Modernization Act (MMA), guarantees that the issue will at least be debated this year.

The MMA (which created the prescription drug benefit) contained a “cost containment” mechanism designed to control excessive general revenue funding for Medicare. Medicare is currently funded from payroll taxes, beneficiary premiums, and general revenues. The MMA created a “trigger” that would be set off whenever two consecutive Medicare Trustees Reports (MTR) concluded that 45% or more of Medicare spending would come from the general revenue within seven years. The 2007 MTR activated this trigger.

Now that President Bush has submitted a proposal to slow the growth of Medicare spending, both the House and Senate are required by law to report Medicare funding reform legislation out of committee by June 30. If they do not, then the law allows for the legislation to be brought to the floor of both chambers through an expedited discharge process.

The projected growth in Medicare spending is a huge problem that require both short and long term changes. In the short term Congress should: 1) Limit taxpayer subsidies to wealthy beneficiaries in Medicare Part B; 2) apply Medicare Part B income-related premium rules to Medicare Part D (the drug program); 3) Explore a more rational cost-sharing structure for traditional Medicare that would vary co-payments on the basis of income. Long term should keep Medicare the way it is today but should also set a date certain by which the program would become a defined contribution system for future beneficiaries.

Medicare and Social Security currently comprise about one-third of the entire federal budget. Congress should ensure that the long term costs for these entitlement programs are built into the budget process and considered along with other priorities in the annual budget. Congress must put all programs on a more level playing field – from so-called ‘discretionary’ programs like defense and education to ‘mandatory’ programs like Medicare and Social Security. The time for small ball on entitlement spending is over. Congress needs to go back to the drawing board and make the big changes necessary to protect our nation’s fiscal health.

Quick Hits:

Update: Watch Heritage’s Federal Budgetary Affairs Senior Policy Analyst Brian Riedl cover the facts of the Bush budget below: