President-elect Barack Obama went on ABC News’s This Week on Sunday for an interview with George Stephanopoulos and had some very interesting things to say about health care and fiscal policy (the full transcript is available here). Consider this exchange:
STEPHANOPOULOS: But you’re going to face some real hard choices. You brought up health care a couple of times—
STEPHANOPOULOS:—in this interview already. During the campaign you said you would pay for health care by repealing the Bush tax cuts on the wealthy. According to the CBO, you’re going to get a $1.2 trillion to $1.8 trillion deficit even if all of the tax cuts are repealed.
STEPHANOPOULOS: So how do you pay for health care?
OBAMA: Well, you know, these are going to be major challenges. And we’re going to have to make some tough choices. Now what I’ve done is indicated to my team that we’ve got to eliminate programs that don’t work.
And I’ll give you an example in the health care area. We are spending a lot of money subsidizing the insurance companies around something called Medicare Advantage, a program that gives them subsidies to accept Medicare recipients but doesn’t necessarily make people on Medicare healthier.
And if we eliminate that and other programs, we can potentially save $200 billion out of the health care system that we’re currently spending and take that money and use it in ways that are actually going to make people healthier and improve quality.
So what our challenge is going to be is identifying what works and putting more money into that, eliminating things that don’t work, and making things that we have more efficient.
I’m not suggesting, George, I want to be realistic here, not everything that we talked about during the campaign are we going to be able to do on the pace that we had hoped.
STEPHANOPOULOS: Let me press you on this, at the end of the day, are you really talking about over the course of your presidency some kind of a grand bargain? That you have tax reform, health care reform, entitlement reform, including Social Security and Medicare where everybody in the country is going to have to sacrifice something, accept change for the greater good?
STEPHANOPOULOS: And when will that get done?
OBAMA: Well, the—right now I’m focused on a pretty heavy lift, which is making sure that we get that reinvestment and recovery package in place. But what you describe is exactly what we’re going to have to do.
What we have to do is to take a look at our structural deficit, how are we paying for government, what are we getting for it, and how do we make the system more efficient?
STEPHANOPOULOS: And eventually sacrifice from everyone.
OBAMA: Everybody is going to have to give. Everybody is going to have to have some skin in the game.
So, the president-elect says he is looking for ways to save $200 billion per year in health care to pay for reform, but the only specific savings item he cites—retrenchment of the Medicare Advantage program—would save about $16 billion in 2014, according to a recent estimate by the Congressional Budget Office of the proposal most often mentioned by Congressional Democrats. (We’ll leave for another day a lengthier discussion of Obama’s characterization of Medicare Advantage. Suffice it to say that seniors losing benefits due to the Obama payment cut will not view the change as an “efficiency gain.”) The obvious question is: where’s the other $184 billion going to come from? I suspect no one in the Obama orbit has a credible answer.
Indeed, it is a bit puzzling to listen to Obama and his team in recent days. There is a sudden, albeit abstract, interest in restoring fiscal discipline over the long run. Apparently the president-elect is even interested in pursuing bipartisan reform of the Social Security and Medicare programs, after essentially swearing off any cuts during his campaign. The transformation is certainly welcome. But it is hard to take terribly seriously given the dearth of specifics.
How exactly will the president-elect and his team bring spending back into line with revenue over the long-run?
Here’s a hint: we won’t get there with yet more vague promises to eliminate programs that don’t work (which ones?), the appointment of a Chief Performance Officer (what does OMB do?), and the creation of new health care entitlements that substitute public funding for private premiums and make our budget outlook worse, not better.