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Wednesday, April 10, 2013

The perceptual alchemy wrought by chained-CPI

As I noted once before, Obama is getting a lot of rhetorical mileage (for whatever that's worth) out of adding chained-CPI to his 2014 budget. Here's Damian Paletta's lede in the Wall Street Journal's account of the unveiling:
WASHINGTON—President Barack Obama's $3.778 trillion spending proposal for next year incorporates for the first time a number of measures to slow the growth of spending on Social Security, Medicare and other federal benefits, hoping to draw Senate Republicans to the table for negotiations.
Obama's 2013 budget contained virtually all these "measures to slow...growth" except chained-CPI. But apparently, the grab-bag of nips and tucks to Medicare, Medicaid, federal employee benefits and other mandatory spending did not qualify as "a number of measures" until chained-CPI alchemized them.

To boost the impression of a sea change, Paletta cites one entitlement cut that's been significantly boosted over last year's budget proposal:
The White House also proposed about $370 billion in cuts over 10 years to Medicare, the health-care program for close to 50 million seniors. Almost half of these reductions would come from lower payments to drug companies, but the budget would raise $50 billion through higher premiums for some recipients over 10 years, much more than previously proposed. 
Last year's budget included about $350 billion in cuts to government healthcare spending, most of them from Medicare.  And it proposed $28 billion in higher Medicare Parts B and D premiums for wealthier benefits. The boost this year to $50 billion is substantial, but hardly game-changing.

Compare the 2014 premium boost:
Increase Income-Related Premiums Under Medicare Parts B and D.

Under Medicare Parts B and D, higher income beneficiaries pay higher premiums. Beginning in 2017, the Budget proposes to restructure income-related premiums under Parts B and D by increasing the lowest income-related premium five percentage points, from 35 percent to 40 percent and also increasing other income brackets until capping the highest tier at 90 percent. The proposal maintains the income thresholds associated with income-related premiums until 25 percent of beneficiaries under Parts B and D are subject to these premiums. This will help improve the financial stability of the Medicare program by reducing the Federal subsidy of Medicare costs for those beneficiaries who can most afford them. This proposal will
save approximately $50 billion over 10 years  (p. 38).
 with the predecessor proposal in the 2013 budget:
Increase Income-Related Premiums Under Medicare Parts B and D.

Under Medicare Parts B and D, certain beneficiaries pay higher premiums as a result of their higher levels of income. Beginning in 2017, the Administration proposes to increase income-related premiums under Medicare Parts B and D by 15 percent and maintain the income thresholds associated with income-related premiums until 25 percent of beneficiaries under Parts B and D are subject to these premiums. This will help improve the financial stability of the Medicare program by reducing the Federal subsidy of Medicare costs for those beneficiaries who can most afford them. This proposal will save approximately $28 billion over 10 years (pp 34-35).
The new budget raises the percentages of the total premium that higher-income seniors pay in a series of brackets. Here, courtesy of an SSA brochure, is an explanation of how those brackets worked in 2013:
Part B helps pay for your doctors' services and outpatient care. It also covers other medical services, such as physical and occupational therapy, and some home health care. For most beneficiaries, the government pays a substantial portion-about 75 percent-of the Part B premium and the beneficiary pays the remaining 25 percent.

If you are a higher-income beneficiary, you will pay a larger percentage of the total cost of Part B based on the income you report to the Internal Revenue Service (IRS).You will pay monthly Part B premiums equal to 35, 50,65, or 80 percent of the total cost, depending on what you report to the IRS.

Bulletin, everyone: Medicare is "means-tested", and has been, to paraphrase a Phillip Roth character,  for a t'ousand years!  Last year's budget proposed modest increases to the extra payments charged to high-income seniors, and this year's budget ups the ante a bit more (e.g., raising the top premium contribution from 80 to 90 percent).   That's the pattern for various proposed cuts to federal spending: the parameters are stretched a bit (or pinched a bit, depending on your perspective) to yield incrementally more savings (the increase in the Medicare premium proposal is relatively steep) . For example, last year's budget proposed to save $27 billion over ten years by making federal employees contribute more to their retirement accounts (p. 27). This year's budget squeezes out $35 billion over ten years from the same source.  Indeed, the page difference in the two budgets' Medicare premium proposals (p. 34-35 in 2013; p. 39 this year) seems roughly proportionate to the typical "cut inflation."

Chained-CPI is a significant change to Obama's budget and would mean significantly less income for American seniors over time.  But it seems to be changing the perceptual chemistry far more than its dollar value warrants.

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