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Obama vs Romney on the Issues / OBAMA VS. ROMNEY: ENTITLEMENTS

Obama vs. Romney: Entitlements

photo of Margot Sanger-Katz
August 23, 2012




The Affordable Care Act retains the entitlement structure of Medicare but tinkers with the ways the program pays doctors, hospitals, and other providers. Altogether, the law cuts $500 billion over 10 years by reducing future payment adjustments; establishing pilot programs meant to encourage lower-cost, higher-quality care; empowering an independent board to keep spending under control if costs rise too quickly; and cutting subsidies to private insurers that offer plans in the alternative Medicare Advantage program. Obama has repeatedly criticized the Republican-backed premium-support system as an effort to “end Medicare as we know it.” The administration’s hope is that new payment models and quality incentives will save money and avoid the need to cut benefits or raise premiums. The president also proposed some modest cuts and premium hikes in subsequent budget proposals. Medicare’s chief actuary has said that the law’s assumptions about cuts in payment formulas are unrealistic.



Obama’s health care law is set to dramatically increase the size of the federal-state Medicaid program in 2014, extending eligibility nationwide to all individuals and families earning up to 133 percent of the federal poverty limit, or about $29,000 for a family of four. That addition of about 17 million people will require major changes in state programs, many of which currently cover only disabled adults, poor children, and pregnant women. Under current law, the federal government foots the total bill for the expansion for two years; after that, some costs shift to the states. The Supreme Court’s recent ruling made this expansion essentially optional for the states, and some may opt out, shrinking the program’s estimated growth.


The president has been vague about his plans for Social Security but has said he will not cut benefits for current retirees or “slash” them for future beneficiaries. He has also indicated that he would look for additional revenue by asking higher-income workers to pay more, although he has not provided details of how that might work.


Obama defends the Supplemental Nutrition Assistance Program and criticizes proposals to cut subsidies or convert the program into a block grant for states. During his presidency, the number of Americans relying on food stamps has ballooned as incomes have fallen during the economic downturn.



Bucking long-established trends, per capita Medicare spending growth has slowed in recent years. But the baby boomers are coming. Medicare’s trustees say that health care reform adds eight more years to the program’s viability; the hospital fund, however, will still be insolvent in 2024.

The economic downturn has dramatically increased the number of Americans eligible for income-based entitlement programs, such as food stamps and Medicaid; this has driven up the price tags for those programs and prompted Newt Gingrich to call Obama the “food-stamp president.”

The 2010 health care law increased spending for fraud investigations, and the Obama administration says it has earned a big return on that investment. In 2011, the administration recovered a record $4.1 billion for the Medicare trust fund by tracking down fraud.



Nancy-Ann DeParle: She was the director of the White House Office of Health Reform while the health care law was being formulated and has since been promoted to deputy chief of staff for policy. The onetime Clinton administration official has run Medicare and Medicaid, and once worked at the Office of Management and Budget.

David Cutler: The Harvard University health economist helped model cost-saving policies in the health care law. He now advises the campaign on entitlement policy.

Donald Berwick: The former administrator of the Centers for Medicare and Medicaid Services influenced Obama’s thinking about the links between improved health care quality and reduced costs.

Neera Tanden: She led the domestic-policy shop on Obama’s 2008 campaign. Now the CEO of the Center for American Progress, a progressive think tank, Tanden continues to advise the president and advocate for his positions.







Romney would convert the single-payer health insurance program into a constellation of private, competing plans. Beginning in 10 years, seniors would get a voucher to buy coverage, priced according to a competitive bidding system, and could choose among private options or traditional fee-for-service Medicare. Key details about how the program would work and how the value of the vouchers would be set are unclear. The most recent plan from Romney’s running mate, House Budget Committee Chairman Paul Ryan, would index growth of the Medicare voucher to a set target; Romney’s comments leave open the possibility that costs would be determined by annual bidding, which would provide more-generous subsidies (but fewer savings) if health care costs rise. The idea is to lower costs through market competition, providing insurers an incentive to attract customers and giving individual beneficiaries an incentive to seek the cheapest policies. Romney has said that the market will control costs better than the government, although the Congressional Budget Office rejected that premise in a 2011 analysis of Ryan’s plan. Romney would gradually raise the retirement age by indexing it to life expectancy and would vary some premiums according to beneficiaries’ incomes.


The former governor would restructure the Medicaid program to give the states much more control but, potentially, much less money. The federal government now pays a percentage of all Medicaid medical claims and also sets rules about benefits and eligible populations. Romney would transform the program into a block grant that would hand over predictable cash grants to states with few policy strings attached. Grants would rise at the rate of gross domestic product growth plus 1 percent. He says that the plan would give states greater flexibility to care for their poor as they see fit and would create incentives to improve efficiency and root out abuse. Critics warn that inflexible spending increases wouldn’t keep pace with health care costs, demographic changes, or increases in the number of eligible residents that accompany economic downturns.


Like Obama, Romney has only gestured in the direction of Social Security reform, saying that the retirement age should keep rising over time and that higher-income beneficiaries should get skimpier benefits than lower-income beneficiaries.


Although Romney has said little about food stamps, he has indicated that he favors converting the program to a block grant, as he would do with Medicaid. The details are unclear, but in the Ryan budget, which Romney endorses, grants increase by fixed formulas and eligibility is tied to work or job training, not just poverty.



While governor, Romney took advantage of the federal match for Medicaid and the State Children’s Health Insurance Program to cover more Massachusetts residents. His landmark health reform plan relied on additional federal Medicaid funds, obtained through a special waiver. Romney also asked Medicaid recipients to pay more, instituting co-payments for some services.

Romney became eligible for Medicare this year when he turned 65, but his campaign said he did not enroll in the program.

As governor, Romney tried, and failed, to convert the state employee pension program from a defined-benefit system to defined-contribution plans.



Paul Ryan: The House Budget Committee chairman’s proposals for entitlement reform have formed the blueprint for Romney’s proposals. Even before his selection as Romney’s running mate, Ryan advised the campaign on budget issues and served as a powerful Romney surrogate.

Tevi Troy: The former deputy secretary in President George W. Bush’s Health and Human Services Department has overseen Medicare and Medicaid, among other health programs. He is part of Romney’s health care policy advisory group.

Lanhee Chen: The former Bush administration official has academic training in health policy. He runs the campaign’s domestic-policy shop.

Mike Leavitt: The former Utah governor and Bush administration Health and Human Services secretary has been tapped to lead Romney’s potential transition team. He is chairman of Leavitt Partners, a consultancy that is helping states implement health care reform.

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