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400 Billion Dollars in Cuts to Medicare? “No. Thank You, President Obama!”

1:26 pm in Uncategorized by TomThumb

In July of 2011, President Obama offered Republicans cuts to Medicare, Medicaid, and Social Security. The written offer is HERE.

Last week, President Obama, made a similar offer to Speaker Boehner.  The paper of record described this as a bold set of demands. Republicans rejected it as insufficient. This writer’s initial rejection consisted of a rejection of the secrecy about President Obama’s proffered cuts to Medicare and other entitlements of about 400 billion dollars. Why be mysterious, Mr. President?

The July 2011 offer included 150 billion dollars in cuts to providers. If this is part of yesterday’s offer, will doctors refuse to take new Medicare patients, if their payments are cut? Will they go and work in foreign countries, or take early retirement?  The July 2011 offer included 150 billion dollars in cuts in Medicare premiums, copays and deductibles.  If this is also part of yesterday’s offer, will patients forego food, rent for premiums. Will patients forego seeing the doctor to avoid copays and deductibles? Both of these two cuts directly impact the quality of healthcare for Medicare recipients and possibly their quality of life. Is that why President Obama has been mysterious as to the cuts and their specifics?? These cuts would represent broken promises made to Medicare recipients.

The July 2011 offer included 125 billion dollars in cuts to Medicaid, in a reduction to “Medicaid FMAP“. Since low-income folks who depend upon Medicaid will be impacted by those cuts, will these also be included in the 2013 cuts/deal with the Republicans?  Because if they are, they represent a betrayal of the promise to provide equality of access to healthcare for people of all social and economic classes.

In July 2011, President Obama offered to alter the age of eligibility for Medicare. In addition, he offered to adjust premiums collected for services, and benefits currently covered under Part B and Part D. These offers represent broken promises. Is that why President Obama does not discuss the specifics of 400 billion dollars in cuts to Medicare and entitlements? The paper of record says that the proposed cuts are the same as offered in 2011. What are we to think then? Why of course they are. A President can save a hundred billion dollars by raising the Medicare age to 67. (148 Billion dollars between 2012-2021.)

Back in 2011, the President and his staff refused to be specific about the cuts they had proposed to Medicare, Medicaid and Social Security. In hindsight, I could guess that they might have felt ashamed to have offered to cut into timbers of the remaining social safety net superstructure. The failure to be transparent and specific about the nature of the cuts proffered to the Republicans now makes sense. Why discuss openly such shameful acts?

But what does it mean that we have such inequality? ……..That we would nick the super wealthy for 160 billion a year and the middle class for 40 billion a year and call that fair? ……….They will trade us half a yacht for a whole, life-saving Medicare surgery! And you can wait two more years to be eligible for the surgery!

Updated, Sunday, December 2nd, 2012:

A Republican counter-offer and a note about the Democrats’ key strategist, Jack Lew.

In response to the President’s offer of 400 billion dollars in cuts to Medicare and other entitlements, the Senate Minority Leader has offered to raise Medicare’s eligibility age 2 years, to means test Medicare, and to institute a benefit cut to Social Security through applying a chained CPI. This is basically the Democrat July 2011 final offer!  They also demanded to block grant Medicaid.

In a hint at where this is headed, a NYTimes article, Aide to Obama Faces Big Test In Fiscal Talks, we learn that Jack Lew is the strategist. Unfortunately, in the past, he was responsible for offering to raise the Medicare eligibility age from 65 to 67. Here is the quote:

“The challenge now for Mr. Lew — and for Mr. Obama — is to forge an agreement that does not cut too deeply into the entitlement programs that Democrats cherish. Like Mr. Obama, Mr. Lew is a pragmatist; one person familiar with his thinking said he had previously expressed willingness to raise the Medicare eligibility age from 65 to 67, a move that many liberals oppose.”

We also learn in the same article that Mr. Lew was involved in the July 2011 negotiations over the debt ceiling and that he was an aide to Tip O’Neill during the 1983 deliberations which resulted in raising the Social Security age of eligibility from 65 to 57.  He worked for Citigroup before being asked to serve in President Obama’s administration. In my opinion, I expect a repeat performance from Mr. Lew.  (Wealthy family=>Harvard=>cuts to SS in 1983 w/Tip O’Neill=>Wealth=>White House budget advisor 1990s=>Citigroup=>White House Key Strategist for long term deficit reduction cuts.)

Meanwhile, to scare all of the buffalo into the White House trap, Plouffe sent out a really scarey email:

And in a message to the millions of people subscribed to the White House e-mail list, David Plouffe, a senior adviser to Mr. Obama, urged supporters to keep the pressure on lawmakers and warned of the dire consequences if the negotiators were unable to find common ground.

“Unless Congress acts, 114 million middle-class American families are staring down a tax increase starting January 1,” Mr. Plouffe wrote in the e-mail.

The real victims are the unemployed who stand to lose their UI at the end of this year. This phoney crisis is becoming more UI hostage taking, and income tax hike blackmail. But this phoney crisis, if it becomes a powerful lever for long-term cuts to important programs, will have negative impacts too. Negative economic projections , which are the basis for deficit hysteria, can become a self-fulfilling prophecy.

In a Politico article, “No Medicare Hit For Seniors? Good Luck with that.” (By Jennifer Haberkorn & Paige Winfield Cunningham.), the authors reviewed possible significant cuts to Medicare which might approximate the cuts demanded by the Republicans and proffered by the Democrats, although undefined by the latter. Their basic theme is that if either party claims that Medicare can sustain significant cuts without reducing benefits to recipients, they are being unrealistic. (I cannot access a link to their article because it is behind a paywall.)  There is another document available on the internet which does outline cuts to Medicare: The Senior Protection Plan by the Center for American Progress. The Orwellian title (Those sound like  ’broken promises’ to seniors to me.) belies facts regarding the billions of dollars involved in each of the proposed cuts. The 49 page “deficit hawk” document is worth reading, if only to convince you that the Beltway wizards think they have a real plan. However, Haberkorn & Cunningham demonstrate the long-range implications for these proposed cuts: either beneficiaries are hit with higher copays, deductibles, premiums, and have difficulty finding insurance coverage if eligibility age is raised; or providers are zapped with reduced payments for doctors services and hospital services. In addition, in another significant cut, pharmaceutical companies would have to agreed to significant cuts around 112 billion dollars.  The largest cut would come from raising the Medicare retirement age from 65 to 67, cutting 148 billion dollars between 2012-2021. Other smaller cuts to Medicare cuts would reduce payments for training future doctors (residencies) and payments to hospitals serving special underserved zone hospitals, such as those in rural areas. The CAP plan makes cuts sound all so painless, but the healthcare analysts show that cuts have real consequences for patients and providers.

Update: December 4th, 2012

The most significant change to Medicare found in the Orwellian “Senior Protection Plan” was a strategic move to place Medicare patients into a form of HMO managed care. While advertised as more care for less money, I would describe this as “least amount of healthcare imaginable”, especially as the organization receiving the total payment can skim 60% of the savings of not providing care they were paid to offer.

Here’s a quote:

Under the Affordable Care Act, teams of providers can form “accountable care organizations” that are accountable for all of a patient’s care. Medicare sets a target for Medicare spending for each accountable care organization. If actual spending falls below the target, accountable care organizations can keep up to 60 percent of the savings. They must meet performance targets on measures of the quality of care, and can keep higher shares of savings for higher performance.”


The other insidious reduction made is to Medicaid by mandating that HMO’s in Medicaid stick to a competitive bidding process instead of receiving a fixxed payment from States (which currently sets the standard of care). Folks, this is a race to the bottom.


Reinforcing that this is the Democrat’s plan is the subsequent report, out today, from CAP, which includes 385 billion in cuts, identified as those described above. Spending cuts begin on Page 17.



2 Social Security Plans and Inequality: Black coffee and stale bread.

10:05 am in Uncategorized by TomThumb

Will the Lame Duck Congress Poop on Social Security?

(Drawing: DonkeyHotey/flickr)

Washington, D.C. technocrats have advanced two Social Security reform plans to address projected future deficits. But there is a shared problem with both plans. The Diamond-Orszag plan and the Bowles-Simpson plan (p.48) reinforce and increase pre-existing income inequality.


1. Both plans do not ask equivalent and proportionate inputs of revenue from all contributors. Wealthy persons’ incomes are shielded from paying payroll taxes. Asking everyone to pay their fair share is a solution; means testing is not the answer.

There is inequality between what is asked of the mass of recipients and what is asked from the rich.  Both plans shield those wealthy groups from revenue collection.  The cap on the FICA tax is slowly raised a fractional amount by the Bowles-Simpson plan until 2050.

In the D-O plan, the amount of the proposed tax above the FICA cap is a mere 3%. Everyone earning incomes under the FICA cap eventually pays a proposed 15.4% FICA tax under the D-O plan. There’s a big difference in the payroll tax between the tax paid by the mass of people receiving modest benefits and the tax paid by the wealthy who earn so much more and pay so much less in payroll tax.

In addition, the income from the financial sector of the economy, which generates capital gains personal income, is not taxed. Wall Street does not pay its fair share once again. Massive amounts of personal income are shielded from taxation by being called a different kind of income.


2. Both plans make the middle and low-income earners responsible to pay  for the gap between past inputs and future benefits.

Because the FICA payroll tax cap did not rise high enough in the past  to tax enough income, and because of rising numbers of high income earners whose incomes were not taxed, a gap was created between revenues and the projected cost of future benefits.  To place the burden of repayment to close that gap, onto the shoulders of those who have already paid their full share,  is exploitative and unfair.

To close four-fifths of the deficit gap, Bowles-Simpson plan makes benefit cuts, COLA cuts, and progressive indexing (cuts) compared to small efforts to raise revenue from those who earn more income than is currently taxed by the SS FICA tax. Included in those cuts are raising the retirement age 2 more years to 69 for FRA, and 64 for ERA. CEPR established that raising the retirement age is an upward redistribution of wealth from lower income groups.

The Diamond-Orszag plan cuts the amount of benefits but leaves the age of retirement intact. However, in a sleight of hand, the D-O plan collects 128% of the revenue necessary to close the  gap in the projected SS deficit. By doing so a future claimant is paying more for the same insurance. e.g. like going to purchase a 15K “valued” car (final SS benefits at retirement)at 0% interest and the sticker on the car is for 22.5K dollars (payroll tax paid every week). Under the D-O plan, that extra payroll tax you would pay into the SS fund goes to fund a SS trust fund of 3.178 trillion dollars in 2078. Not toward paying for future received benefits in accord with the current, more generous, benefit formulas.


3. Both plans flatten the benefit payments so that benefits are disconnected from earnings history. The large mass of future benefit recipients will be paid a more narrowly corralled benefit payment .

The B-S plan uses progressive indexing to radically flatten the benefits within a narrow 9 to 15K range. See Fig 2 of the CBPP study.

The D-O plan flattens the benefits surreptitiously, through overpricing the purchase of Social Security benefits through excessive payroll taxes, and then finally through offering a reduced Social Security benefit at retirement (10% cut for current  25 y.o.s).

Snapshot 2012-10-22 10-12-17

(Figure 2. is used with permission from CBPP.)


4. Neither plan updates the “poverty level” to current costs for housing, food, energy, transportation and medical expenses.

Both reform plans offer a ‘basic benefit‘ which hover around the existing poverty line as measured forty some years ago and which has never been upgraded to account for what it actually costs to live here. The Bowles-Simpson plan has the audacity and arrogance to advance a retrograde CPI which would gradually guarantee a decline over time  in the value of benefits as inflation progresses while benefits hold at lower levels.

FDR’s stated reason for developing Social Security was to bring older people out of poverty. The inevitable fate of  50% of older unemployed persons for whom there were no jobs and no family to fall back on was crushing poverty.  Both of the proposed ‘reforms’ will channel more and more individuals onto a poverty trajectory.  If 20K in 2078 is the new 10K poverty line from 2012, what will SS benefits of 9 to 15K be like to live on? Black coffee and stale bread.