Forget Taxes, Health Care Is Where the Real Fiscal Cliff Action Lies

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A couple of days ago John Boehner unveiled his fiscal cliff proposal, which included $800 billion in tax revenue that he refused to provide any detail about. That gave everyone a good chuckle. But if you ignore Boehner’s pro forma insistence that we should lower tax rates on the rich, the truth is that his figure is at least plausible. A cap on deductions of about $40,000 would probably do the job. That’s a big political lift, but it’s not impossible and it’s not mysterious.

What is more mysterious is Boehner’s contention that he can get $600 billion in health care cuts. (All numbers are savings over ten years.) There’s no simple solution for that. Raising the Medicare eligibility age is a bad idea for a bunch of reasons, but even if we do it, it will only save about $100 billion. Where’s the rest coming from? The answer won’t come from any Paul Ryan-ish plan, which explicitly doesn’t affect current and near-retirees and wouldn’t begin saving money for many years.

This is the part of Boehner’s plan that I’d really like to hear more about. The Simpson-Bowles proposal includes a long laundry list of small changes in health care policy that amount to about $80 billion per year, but it includes things like higher costs for military retirees (not likely); tort reform (obviously not going to happen in the next three weeks); cuts in medical education (probably not a good idea since we need more doctors over the next decade); and a strengthening of IPAB (the fabled “death panel” of the tea party’s fevered imagination). Beyond that, there are a bunch of smallish benefit cuts that add up to a few tens of billions of dollars per year.

In other words, there’s no easy answers here. You can punt, by simply declaring that Medicare growth will be limited to GDP + 1 percent and calling it a day, but that’s a chimera. The truth is that cutting health care costs is really, really hard. Obamacare includes a bunch of provisions that will probably reduce the rate of growth, but they’ll take years to kick in and no one knows for sure how well they’ll work. Alternatively, you can just flatly cut benefits, but Republicans have (to be charitable about it) taken a fairly erratic set of positions about that.

This is the part of the plan to watch. For all the bluster, a deal on taxes is eminently possible. Discretionary cuts of $300 billion are also possible, especially if you agree to split them between defense and domestic cuts. Even a $300 billion deal on Social Security is possible.

But $600 billion in medium-term health care savings? It’s not impossible, but it’s pretty damn close.

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