Democrats are trying to push the biggest Medicare savings off the table. The quiet liberal plan for entitlements

Ask liberals about GOP demands to rein in Social Security and Medicare spending, and many say this: no way.

But the truth is, there are a number of ideas to do just that already sitting on the shelves of influential liberal think tanks around Washington.


They wouldn’t add up to a massive overhaul of the system, and Democrats are trying to push the biggest Medicare savings off the table — and they don’t want to touch Medicaid at all.

( Also on POLITICO: Poll: 58% oppose Medicare cuts)

Even so, the ideas that already have been blessed by groups on the left could allow President Barack Obama to get the discussion on entitlements going without infuriating his base.

Here are the highlights of the Democratic entitlement reform menu:

Social Security: 'Chained CPI'

Savings: $112 billion

The idea is to change the way the government figures out how much more seniors should get in Social Security benefits each year to account for changes in their cost of living.

This new formula — a tweak to the consumer price index — would assume that people switch their buying habits when prices rise, rather than just buying the same things over and over. So, for example, if the price of ground beef goes up, someone might buy chicken or fish instead.

The result: Social Security benefits will rise more slowly.

Obama has offered the change before — he supported it during his fiscal cliff talks with Republicans in December. And two think tanks that supply ideas to the Democrats — the liberal Center for American Progress and the more centrist Third Way — have included it in their Social Security plans, giving Obama plenty of cover in case he decides to go that way again.

But a lot of Democrats and liberals aren’t on board. They say seniors are already having a hard enough time with the current cost-of-living increases without dialing them back.

That’s why liberals want any chained CPI agreement to be balanced out with measures to ease the burden on the seniors with the lowest incomes. For example, Paul Van de Water, a senior fellow at the liberal Center on Budget and Policy Priorities, suggests exempting people on Supplemental Security Income — which pays benefits to the lowest-income seniors — and making a special payment to seniors who have been on Social Security for 20 years because they get poorer as they get older.

The Obama administration tried to build in some protections for low-income seniors when Obama floated the chained CPI idea in the fiscal cliff talks — which is why House Minority Leader Nancy Pelosi signaled last month that she could have supported the proposal. If Obama goes there again, his party will be watching closely to see how he does it.

Social Security: Lift cap on taxable earnings

Revenues: $500 billion or more

Even if the Democrats accept chained CPI, they’re going to want some goodies in return. One big one: Let the highest earners pay more Social Security payroll taxes.

Right now, employers and workers only pay those payroll taxes on the first $113,700 of income.

Lift the cap so 90 percent of all Americans’ earnings are taxed — it’s only about 83 percent now — and a Social Security deal could raise about $550 billion in revenues over the next 10 years, according to estimates by Third Way, which has endorsed the approach. It would also wipe out Social Security’s deficit through 2020.

The Center for American Progress suggests getting rid of the earnings limit only for employers, but not for employees, so workers wouldn’t see a direct tax increase.

Either way, of course, this idea wouldn’t be a concession to Republicans at all — in fact, it would be a wildly tough sell. Any way it’s designed, it would look like a tax increase.

Social Security: Change the benefit formula

Savings: Would close half of Social Security shortfall

Another big item on the liberals’ agenda would be to change the way Social Security is distributed — giving more to low-income seniors and less to high-income seniors.

Both CAP and Third Way have proposed the option, which they say would strengthen Social Security’s role as a safety net for vulnerable seniors while giving the higher-income ones more incentive to save for their own retirement. It also acknowledges that the seniors who live the longest tend to be the people with high incomes and education levels, according to Van de Water.

The precise amount of savings is unclear — CAP says there’s “no exact estimate” for how much money it would bring in. But a version of the idea was included in the Simpson-Bowles deficit plan, and the commission estimated it would have a powerful effect — getting rid of about half of Social Security’s shortfall within 75 years.

And more importantly, it’s one idea that could get support from Democrats and Republicans — including Rep. Paul Ryan (R-Wis.). The House Budget Committee chairman and former veep candidate didn’t spell out Social Security reform ideas in his last budget, but his aides say he’d be OK with a switch to a more progressive benefit formula.

“One way to protect low-income seniors from a looming 25 percent benefit cut is to slow the growth in benefits for higher-income beneficiaries. Nearly every proposal by either Democrats or Republicans to address Social Security’s insolvency includes some version of this reform. And Chairman Ryan supports it,” Ryan spokesman William Allison said.

Medicare: Expanded means testing

Savings: $20 billion

Obama has said he won’t consider Medicare changes that would shift costs to seniors, but an expansion of the program’s means testing is the one benefit cut Democrats have hinted they might accept — because it would hit wealthier seniors and spare the rest.

There’s already some means testing of premiums for Medicare coverage of doctors and prescription drugs, thanks to Obamacare and the 2003 law that created the Medicare prescription drug program. The version that Obama proposed in his 2011 deficit plan, and could put on the table again, would extend that means testing to charge higher premiums and hit a larger group of seniors.

The idea, as spelled out in his deficit plan, is to make the means-tested premiums 15 percent higher and let more seniors drift up into the income range where they’d have to pay the higher premiums — until 25 percent of all seniors are paying them.

Under Obamacare, 14 percent of seniors are supposed to pay the higher premium for doctors’ coverage by 2019, and just 9 percent are supposed to pay it for the prescription drug coverage, according to the Kaiser Family Foundation.

This one shouldn’t be a hard sell to Democrats and liberals because CAP included a version of expanded means testing in its own health care savings plan in November. And Obama can also argue that because the Democrats have already gone there, they can do itagain.

But that only means Obama would get “less grief, not no grief” compared to other Medicare savings ideas, Van de Water said. That’s because many Democrats believe the big entitlement programs — Medicare and Social Security — need broad public support to survive, and that will be weakened if Congress keeps hitting up the wealthy to pay more.

Medicare: Faster payment reforms

Savings: $10 billion

Republicans often complain that Democrats don’t want to make any real changes to bring more money into Medicare — they just want to keep cutting payments to providers. But there’s no real controversy over Obamacare’s incentives to provide more efficient medical care, and that’s where some on the left think there’s potential for common ground — by just beefing up those experiments.

CAP’s health care plan, for example, got $10 billion in savings out of speeding up the new ways of paying for Medicare and Medicaid services, so the doctors don’t keep getting paid for every test or procedure they give. One new alternative is “bundled payments,” which reimburse hospitals and other health care providers for a set of services — taking away some of their incentive to boost their pay by performing more and more tests.

That doesn’t get Congress a long way toward a big Medicare savings target, but Obama’s bigger idea is probably dead in the water. He wanted to give Obamacare’s new Medicare panel, the Independent Payment Advisory Board, more power to cut payments if other measures didn’t reduce enough of the program’s spending. But Republicans hate that board — Ryan called it a “rationing board” during the fall campaign — and they’re going to make a new attempt to repeal it.

But the two parties might make more headway, some liberal analysts say, by just agreeing to speed up the experiments in more efficient ways to deliver medical care and pay for it. The broader the agreement, they say, the bigger the potential savings.

“If Democrats and Republicans work together and agree that this is the path ... that would go a long way,” said David Kendall, a senior fellow at Third Way.

Medicare: Drug rebates

Savings: $135 billion

One of Obama’s biggest Medicare savings ideas would come straight out of the pockets of drug companies — which means he’d face a fight, but probably not from Democrats.

Right now, pharmaceutical companies have to pay a rebate when the government buys prescription drugs for people on Medicaid but not for low-income seniors who qualify for both Medicare and Medicaid. The proposal, which Obama included in his deficit plan, would make the drug manufacturers give the same rebates for these “dual eligibles,” adding up to huge savings for Medicare.

The catch, of course, is that the drug companies would go to war to keep that from happening. The main drug trade group, the Pharmaceutical Research and Manufacturers of America, has warned in the past that it would consider any new rebate requirement a form of government-dictated price controls.

PhRMA has played ball with the Obama administration before — it struck a deal with the White House in 2009 to contribute $80 billion to the health care reform effort, offering the discounts that have made it possible for Obamacare to close the “doughnut hole” gap in Medicare prescription drug coverage. But the drug industry has also made it clear that it’s not interested in taking another hit.

This article first appeared on POLITICO Pro at 10:01 a.m. on January 27, 2013.