Look what the GOP can get for $300 billion

In July 2011, Obama was reportedly ready to sign off on a grand bargain for deficit reduction that would include $800 billion in new revenue and somewhere in the neighborhood of $3 trillion in spending cuts over ten years. David Brooks said that Republicans would be crazy not take such a deal.  And that decision may pay off for them.

If Republicans can stomach the sequester and withstand pressure from defense contractors and other constituent groups, they can close the books on ten-year deficit reduction with some $2.7 trillion in spending cuts and the measly $600 billion in new revenue that Obama unaccountably settled for on Jan. 1 (plus additional interest savings).

The double catch is that even Republicans profess to dislike the sequester's indiscriminate swing of the meat ax, and Republicans also purportedly want to cut and "reform" entitlements -- though they would prefer to induce Obama to do the dirty work on that front.  And the funny thing is that he will -- if Republicans would only give ever so little on revenue. My educated guess is that if they would agree to say $200 billion worth of tax loophole closures or tightenings, Obama will go quite far in altering the structure of Medicare, Medicaid and Social Security.

There's one other catch. Republicans would have stop doing their utmost to strangle Obamacare in the crib. That's their ticket to privatizing Medicaid and Medicare.

Consider the Rubicon on Medicaid that's been stealthily crossed in the last month. Sarah Kliff explains:

Three weeks ago, when Arkansas governor Mike Beebe was in Washington for the National Governors Association meeting, he made a trip to Health and Human Services.

Beebe had an unusual Obamacare proposal. The Arkansas legislature did not want to expand Medicaid for those under 133 percent of the federal poverty line, an option under the Affordable Care Act. Instead, it wanted to use billions in Medicaid funding to buy private insurance for that same population.

To the surprise of many (including Beebe), the Obama administration approved, in concept, the idea.

That was just three weeks ago. Now, by my count, there are four other states considering the Arkansas approach: Florida, Ohio, Louisiana and Maine. They’re the states below in yellow, alongside states with governors who have already committed to the Medicaid expansion, in pink.

This prospect does not mean that Medicaid for existing participants will be privatized. It does mean, though, that federal Medicaid dollars will be used to subsidize private insurance purchases -- with the likely downsides, as Aaron Carroll explains, of a) costing the federal government more money, and b) providing care that's less comprehensive and less tailored to the needs of the truly poor. On the plus side, it does suggest that at least four more Republican governors won't be working overtime to make the exchanges fail -- and perhaps the ACA exchanges will benefit from the extra customer influx. 

Note the broader political sea change: Republican governors effectively embrace the ACA exchanges as a private-and-therefore-inherently-superior alternative to government-supplied healthcare. Wisconsin Governor Scott Walker did just that in a conversation yesterday with conservative reporter Philip Klein. Here's how Walker defended moving Medicaid eligibles into the exchanges:

WALKER: What do I want? I want fewer people uninsured, but I also want fewer people dependent on government for their health insurance and that’s why we made the decision we made.

KLEIN: The issue though is that it’s a result of the fact that there are these exchanges that at least supposedly are going to be operational next year. So, couldn’t it be argued that people are still dependent on government, it’s just that they’ll be dependent on federal subsidies for the exchanges instead of on Medicaid?

WALKER: It’s a legitimate argument and there are two phases of that. If you had to choose between Medicaid dependency or a transition, because as people’s income eventually grows there’s less of a subsidy, less of a dependence, whereas they are entirely dependent on Medicaid, on the government to provide Medicaid — it’s preferable for me to get people into at least more of a marketplace even if it comes with some government subsidy to it, because there’s a progression there.

It's such thinking that led conservatives, about a million years ago, to conjure up the notion of government-subsidized private health insurance exchanges in the first place, before Democrats spoiled it for them by taking the idea seriously. But never mind  That reversion to a Republican embrace of exchanges, could as Avik Roy recently proposed, lead Republicans to seize on the ACA exchanges as a lever to privatize Medicare. Recall that in July 2011, Obama was purportedly willing to raise the Medicare eligibility to 67.  How do you do that without throwing mid-sixty-somethings into the ranks of the uninsured? Let go the dream of repealing Obamacare, and the answer is obvious:

Obama’s victory means that Obamacare will be implemented, warts and all, making it politically impossible to repeal, even if Republicans are fortunate enough to retake Washington in 2017.

How does that affect entitlement reform? By making it much easier to raise Medicare’s retirement age. If Medicare’s eligibility age increases, younger seniors will have another option for gaining subsidized coverage: Obamacare’s insurance exchanges.

The exchanges use a premium-support system that is nearly identical to the one that Paul Ryan proposes for Medicare. There are two key differences. First, Ryan’s most recent proposal included a government-run “public option”; Obamacare’s exchanges do not. Second, Obamacare’s exchanges contain significant means-testing provisions; if the entire Medicare population were eventually to migrate over to these exchanges, the wealthiest quartile of retirees would move off the government-health-care rolls altogether. By contrast, the Ryan plan provides subsidized coverage to all seniors, even the very wealthiest.

In other words, raising Medicare’s retirement age — say, by three months a year, every year, for the foreseeable future — would be a simple way to introduce premium support to younger seniors while making no changes to the program for current retirees and older future ones. In addition, because such a measure would move the wealthiest seniors off of government assistance altogether, it would likely reduce spending more quickly than the old Ryan plan did. And lower-income seniors who want to retire at 65 could still do so, because they would remain eligible for subsidized coverage in the Obamacare exchanges.

Transitioning seniors and poor adults from public to subsidized private insurance is probably poor policy -- at least, until the exchanges have been stood up and field-tested, as Donald Taylor has suggested we do before testing them for Medicare beneficiaries. Both changes would probably cost rather than save money. But given their confidence in the Competition Fairy, Republicans would probably be happy to count the changes as "spending cuts."  And Obama, I suspect, would go for a compromise along these lines (more probably the first steps in Roy's imagined fusion of the ACA and Medicare than the whole Medicare-for-all-no-subsidies-for-the-affluent enchilada) if Republicans gave him the fig leaf of a modest amount of new revenue to justify privatizing service for 65-67 year-olds.

In the runup to the fiscal cliff, Obama's 10-year revenue ask dwindled from $1.6 trillion to $1.2 trillion. He yielded the leverage that the expiration of the Bush tax cuts afforded him for a mere $600 billion and now -- surprise -- finds the Republicans unwilling to freely yield up more. Given his negotiating track record, I suspect he'd be happy to close the books on the great deficit reduction quest with another $200-400 billion added to the revenue ledger.  Agreeing to chained-CPI, which lowers the future value of Social Security payments, would get him another $90 billion in revenue over ten years, according to one estimate. That makes the final leap for both sides a very small one. Capping the value of any taxpayer's deductions at 30% of the deducted total -- instead of the 28% that Obama has proposed -- would probably get you there. So would a short laundry list of deductions that benefit primarily the wealthy and corporations.

Republicans won't do it. But they could very fairly declare victory if they did.