The Massive Hidden Safety-Net Cuts in Chairman Ryan’s Budget

March 21, 2012 at 4:44 pm

A key misunderstood element of House Budget Committee Chairman Paul Ryan’s budget plan is his proposed cut in spending for “other mandatory” programs  — non-discretionary programs other than Social Security, Medicare, Medicaid, and other health programs.  His plan shows almost $1.9 trillion in cuts in such programs over the next ten years compared to what President Obama’s budget proposed for such programs.  His plan does not provide any details about specific program cuts that would add up to that very large amount, although Chairman Ryan reportedly indicated that he would get a significant portion of the savings from not accepting various policies that the President proposed.

But any notion that you could get most of the $1.9 trillion in savings in this category simply by rejecting the President’s proposals for new spending would be mistaken.  In fact, the Ryan plan proposes to cut spending for non-health mandatory programs by $1.2 trillion below the spending projected for these programs under current policies.

Moreover, you cannot achieve those savings without making very deep cuts in the crucial safety-net programs in this category, such as SNAP (formerly known as food stamps), Supplemental Security Income for the elderly and disabled poor, Temporary Assistance for Needy Families, the school lunch and other child nutrition programs, and unemployment insurance.

At today’s House Budget Committee markup, Chairman Ryan’s staff indicated that his plan assumes a $133 billion cut in SNAP over the next ten years.  In a document outlining his plan — The Path to Prosperity — and in response to press questions, Chairman Ryan also suggested that cuts in farm programs and changes in federal employee retirement could contribute to the required savings (although he provided no details about the policies that he assumed or the savings they would achieve).  But these two areas could likely provide only a relatively modest amount of savings.  Total projected spending for farm programs over the next ten years is $165 billion.  While we have long supported substantial cuts in farm programs, cutting more than a modest portion of the projected spending for those programs isn’t politically feasible.  (The Bowles-Simpson commission seemed to agree; it proposed significant cuts in Social Security, Medicare, defense, and many other programs, but to cut farm programs by only $10 billion over ten years.)

The federal employee retirement program is more politically vulnerable — Bowles-Simpson recommended $93 billion in savings from changes in federal civilian and military retirement (most of which would come in the form of an increase in revenues, although Bowles-Simpson displayed the savings as a cut in mandatory spending, which Chairman Ryan presumably is assuming as well).   Assuming about $100 billion in savings from federal retirement programs, $133 billion in savings from SNAP, and $50 billion in savings from farm programs (five times what was acceptable to Bowles-Simpson commission members), an additional $900 billion in savings under the Ryan plan would have to come from non-health mandatory programs.

Of the $900 billion, a very small amount could come from increases in fees or asset sales, but the bulk would have to come from the safety-net programs that represent most of the remaining spending in this category.  Put simply, there is no way to generate the required savings without extremely severe cuts in these programs, on which the most vulnerable Americans depend.  Cutting these programs sharply would be an appalling idea — particularly while the wealthiest Americans would get big tax cuts — but House passage of a budget that requires these cuts without a full and honest debate about them, and without leveling with policymakers and the public about what cuts the Ryan budget envisions in these programs, would be a real travesty.

Chairman Ryan and the Medicare Part D Myth

March 21, 2012 at 3:21 pm

House Budget Committee Chairman Paul Ryan claims that his troubling proposal to convert Medicare into a premium support system — where beneficiaries would receive a voucher to buy private coverage or traditional Medicare — would control costs.  He notes that the Medicare Part D drug benefit, which private insurers provide, has cost much less than the Congressional Budget Office (CBO) expected.  He says that the lower spending reflects efficiencies produced by competition among private insurers.

But, as our analysis from last year (which we issued after Chairman Ryan started making these claims) explained, Part D’s reliance on private plans had little to do with its lower-than-expected costs.  The primary factors were:

  • Prescription drug spending growth throughout the U.S. health care system slowed sharply just as Part D got up and running.  That’s because fewer blockbuster drugs were coming to market, major drugs were going off-patent, and consumers were using more generic drugs.  In fact, overall U.S. prescription drug spending was about 35 percent lower in 2010 than CBO had projected back in 2003, when Congress created Part D.  Medicare’s trustees have explained that this system-wide slowdown was a key factor in reducing Medicare drug spending below original projections.
  • Part D enrollment was lower than expected.  In 2010, only about 77 percent of people enrolled in Medicare Part B also enrolled in Part D or received Medicare-subsidized drug coverage through their employer, well below CBO’s original 93 percent estimate.  Roughly 6.5 million fewer people were enrolled than CBO had estimated in 2003.

Moreover, there is strong evidence that using private plans to deliver the Medicare drug benefit has actually raised Medicare’s costs.  Before Part D existed, low-income elderly people enrolled in both Medicare and Medicaid (known as “dual eligibles”) got drug coverage through Medicaid, which requires drug manufacturers to provide large discounts for the drugs it buys.  The private insurers providing Part D drug coverage, however, are getting much smaller discounts.

Last year, the Department of Health and Human Services’ Office of Inspector General found that the discounts negotiated by private Part D plans reduced the costs of the most widely used brand-name drugs by only 19 percent; in comparison, the rebates that Medicaid requires cut costs for those drugs by 45 percent.  Requiring drug manufacturers to pay Medicaid-level rebates for drugs dispensed to low-income Medicare beneficiaries, as the Administration proposes, would reduce Part D costs by $137 billion over the next ten years, according to CBO.

Contrary to Chairman Ryan’s claims, CBO’s analysis of his previous premium support proposal found that replacing traditional Medicare with private insurance actually would raise total health care costs per beneficiary because private insurance has higher provider payments and administrative costs.

Chairman Ryan’s Call for “Welfare Reform, Round Two” Ignores Inconvenient Facts About Round One

March 21, 2012 at 3:06 pm

House Budget Chairman Paul Ryan said yesterday that his budget aims to begin “welfare reform, round two.”  According to Chairman Ryan, “That means block-granting means-tested entitlements — like food stamps, like housing assistance — back to the states so they can customize these benefits, have time limits, work requirements, the kinds of successful policies that made welfare reform so successful.”

But the statistics he cites about welfare reform’s “success” come from the early years of welfare reform, when the unemployment rate was exceptionally low — in April 2000 it fell to 3.8 percent, below what economists consider full employment.  Since a safety net is supposed to help people during times of economic need, the true measure of success is how it does during the worst of times, not the best of times.  And, 15 years after Congress enacted welfare reform, we can see clearly that it is not the resounding success that Chairman Ryan claims.

The facts speak for themselves:

  • Fact #1:  Single mothers’ employment rose during the early years of welfare reform, but it started losing ground in 2000 and now, nearly all of those gains have been lost. The share of poorly educated single mothers with earnings rose from 49 percent in 1995 to 64 percent in 2000 but has since fallen or remained constant every year.  By 2009, it had fallen to 54 percent — the same level as in 1997, which was the first full year of welfare reform implementation (see graph).  It remained at 54 percent for 2010.
  • Fact #2:  Welfare reform contributed only modestly to the rise in employment for single mothers during the 1990s. A highly regarded study by University of Chicago economist Jeffrey Grogger found that welfare reform accounted for just 13 percent of the total rise in employment among single mothers in the 1990s.  The Earned Income Tax Credit (which policymakers expanded in 1990 and 1993) and the strong economy were much bigger factors, accounting for 34 percent and 21 percent of the increase, respectively.
  • Fact #3:  Temporary Assistance for Needy Families (TANF), the centerpiece of welfare reform, helps many fewer poor families than its predecessor, Aid to Families with Dependent Children (AFDC). Welfare reform’s modest contribution to raising employment among single mothers came at a very high price.  As our recent report showed, TANF serves only 27 families for every 100 families in poverty, down from 68 families for every 100 families in poverty before welfare reform.  Many children face bleaker futures as a result:  in 2005, TANF lifted just 650,000 children out of “deep poverty” (that is, raised their family incomes above half the poverty line); ten years earlier, AFDC lifted 2.2 million children out of deep poverty.
  • Fact #4:  States used their flexibility under TANF’s block grant to undermine, not strengthen, the safety net for poor families. The Great Recession provided the ultimate test of whether states could do a better job than the federal government of providing a safety net for poor families.  They failed.  The national TANF caseload rose by just 13 percent during the downturn, even though the number of unemployed doubled, and caseloads in 22 states rose little or not at all.  In contrast, the national SNAP (food stamp) caseload rose by 45 percent and kept 5 million people out of poverty in 2010 under a measure of poverty that counts non-cash benefits.  When the need for cash assistance rose during the recession, states responded by scaling back their TANF programs to save money — shortening and otherwise tightening time limits and reducing already low benefits further, leaving the poorest families poorer.

The real agenda for “welfare reform, round two” should be to fix the failings of round one and build on successes like the TANF Emergency Fund, which states used to place 250,000 people in temporary jobs and provide basic and emergency assistance to many others.  It shouldn’t be to extend a failed model to other critical programs.

Greenstein on the Ryan Budget

March 21, 2012 at 11:17 am

We’ve issued a statement from Robert Greenstein on the budget from House Budget Committee Chairman Paul Ryan.  Here’s the opening:

The new Ryan budget is a remarkable document — one that, for most of the past half-century, would have been outside the bounds of mainstream discussion due to its extreme nature.  In essence, this budget is Robin Hood in reverse — on steroids.  It would likely produce the largest redistribution of income from the bottom to the top in modern U.S. history and likely increase poverty and inequality more than any other budget in recent times (and possibly in the nation’s history).  It also would stand a core principle of the Bowles-Simpson fiscal commission’s report on its head — that policymakers should reduce the deficit in a way that does not increase poverty or widen inequality.

Click here for the full statement.

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A First Look at the Ryan Budget

March 20, 2012 at 5:25 pm

We’ve issued a brief analysis of House Budget Committee Chairman Paul Ryan’s new budget plan.  Here’s the opening:

House Budget Committee Chairman Paul Ryan’s new budget plan specifies a long-term spending path under which, by 2050, most of the federal government aside from Social Security, health care, and defense would cease to exist, according to figures in a Congressional Budget Office analysis released today.

The CBO report, prepared at Chairman Ryan’s request, shows that Ryan’s budget path would shrink federal expenditures for everything other than Social Security, Medicare, Medicaid, the Children’s Health Insurance Program (CHIP), and interest payments to just 3¾ percent of the gross domestic product (GDP) by 2050.  Since, as CBO notes, “spending for defense alone has not been lower than 3 percent of GDP in any year [since World War II]” and Ryan seeks a high level of defense spending — he increases defense funding by $228 billion over the next ten years above the pre-sequestration baseline — the rest of government would largely have to disappear.  That includes everything from veterans’ programs to medical and scientific research, highways, education, nearly all programs for low-income families and individuals other than Medicaid, national parks, border patrols, protection of food safety and the water supply, law enforcement, and the like.

Click here for the full report.