Donald Trump

Thoughtful Deficit Reduction in the President’s Budget

Mar 4, 2020 | Budgets & Projections

While much of the decline in debt as a share of GDP in the President’s Fiscal Year (FY) 2021 budget comes from rosy economic growth assumptions and unspecified savings, the budget also includes a number of thoughtful deficit reduction policies.

Not only does the budget save Medicare $600 billion while reducing out-of-pocket health care costs, it also proposes a number of other policies with broad support among experts, and even politicians, from across the political spectrum – many of which have appeared in both President Trump's previous budgets and President Obama’s budgets.

In total, we identified roughly $1.3 trillion of deficit reduction that has the potential for bipartisan support. Congress should seriously consider these proposals when crafting its own budget resolution, identifying budget offsets, or enacting much-needed deficit reduction.

Roughly half of the savings we identify would come from health care, and most of that is the $600 billion of Medicare savings we’ve written about before.

The larger health care savings include Medicare payment reforms such as reducing excessive post-acute care payments, equalizing payments for similar health services offered at different health settings, reducing reimbursements for bad debts, and reforming spending on graduate medical education and uncompensated care. The budget also includes a placeholder for drug pricing reform based on the bipartisan Senate Finance Committee bill, medical malpractice reform, and policies to reduce fraud and overpayments in Medicare and Medicaid.

Most of these proposals have the support of health experts on the left and right, and many of them were proposed in some form in President Obama’s budgets and are currently being advocated for by Democrats on the 2020 campaign trail. As we explained recently, the Medicare changes would actually reduce health care premiums and out-of-pocket costs, not reduce benefits.

Policy Ten-Year Savings
Enact site-neutral payments by paying all off-campus hospital-owned providers at normal physician office rate and paying on-campus outpatient departments at the physician office rate for certain services* $165 billion
Reduce the cost of prescription drugs by enacting comprehensive drug pricing reform, including a redesign of Medicare Part D, based on the bipartisan Senate Finance Committee bill* $135 billion
Reduce and reform post-acute care payments by establishing a unified payment system for post-acute care regardless of setting and lowering payments to align with cost $100 billion
Modify payments to hospitals for uncompensated care by replacing Disproportionate Share Hospital (DSH) payments with a new lower-cost program outside of Medicare $90 billion
Reform Graduate Medical Education (GME) payments by consolidating existing GME spending into a new capped federal grant program outside of Medicare* $50 billion
Reform medical liability by capping non-economic medical malpractice damages and enacting other reforms to reducing liability insurance premiums and defensive medicine practices $40 billion
Limit Medicare payments for bad debt by reducing reimbursement of bad debt from 65 percent to 25 percent $35 billion
Continue Medicaid Disproportionate Share Hospital (DSH) allotment reductions that currently expire after 2025 $30 billion
Improve Medicaid program integrity by improving safeguards and addressing risks to program integrity identified by the Office of Inspector General and the Government Accountability Office $20 billion
Reduce Medicare waste by requiring prior authorization for procedures at high risk of fraud, waste, or abuse $15 billion
Authorize long-term care hospital (LTCH) site neutral exception criteria in order to better align payments to LTCHs per Medicare Payment Advisory Commission (MedPAC) recommendations $10 billion
Reform and expand competitive bidding for durable medical equipment by eliminating the single payment amount and paying medical suppliers at their winning bid amounts* $10 billion
Total, Health Savings $700 billion

*Builds on an Obama policy.
Similar or identical to an Obama policy.

Outside of health care, there are many other savings worthy of consideration. Again, many were proposed in some form in President Obama’s budgets.

For example, the President’s budget would raise more tax revenue by improving enforcement of current tax laws, especially by increasing funding to the IRS. These proposals mirror Obama-era ideas and are widely supported among tax experts.

The President’s budget also reforms the student loan subsidy by creating a single income-driven repayment (IDR) repayment plan in place of the standard repayment cap, differentiating graduate and undergraduate students, eliminating the in-school interest subsidy, and closing a loophole that allows married persons filing separately to report one income when repaying income-based and some pay-as-you-earn loans. Though these proposals are much more aggressive than prior ones, they build upon reforms President Obama proposed in his FY 2015 budget request.

The Budget would also reform federal retirement benefits — including by adjusting the COLA, using more years to calculate benefits, increasing worker contributions, and reducing excessive subsidies to the "G-Fund" interest rate. Again, some of these policies are more aggressive versions of Obama-era proposals and many were recommended by the Simpson-Bowles Fiscal Commission or other bipartisan efforts.

The budget also proposes numerous reforms to the Social Security Disability Insurance (SSDI) program. This includes common-sense program integrity savings such as disallowing concurrent receipt of Unemployment Insurance (UI) and SSDI, eliminating the Workers' Compensation reverse offset, and improving payment accuracy. It also calls for renewed demonstration authority for the Social Security Administration to test new approaches to support employment for people with disabilities as well as help youth receiving Supplemental Security Income (SSI) transition to employment at adulthood — including many put forward as part of our SSDI Solutions Initiative. While the budget assumes unrealistic savings from these proposals (we do not count those savings below), the ideas to modernize disability programs and help people with disabilities remain in the workforce are worthy of consideration, nonetheless.

The budget also includes numerous additional bipartisan savings — including from reducing overly generous and duplicative farm subsidies, postal service reform, to those more in line with the private sector, increasing various premiums and user fees, and cutting down on waste, fraud, and abuse.

Policy Ten-Year Savings
Reform student loans by creating a single income-driven student loan repayment plan and eliminating standard payment cap* $90 billion
Reform the postal service by increasing flexibility, improving management, and adjusting compensation* $90 billion
Reduce federal worker retirement benefits by modifying benefits, reducing the G-Fund subsidy, and increasing worker contributions* $90 billion
Improve tax enforcement by better funding the IRS and giving the IRS new authority to enforce the tax code* $80 billion
Reduce farm subsidies by tightening eligibility rules, streamlining and consolidating programs, and reducing subsidies* $45 billion
Increase & extend GSE fees, imposing a 0.2 percent guarantee fee on mortgages backed by Fannie Mae and Freddie Mac* $35 billion
Improve PBGC solvency by adding new Pension Benefit Guaranty Corporation (PBGC) premiums to the multiemployer program* $25 billion
Eliminate the in-school interest subsidy by repealing the category of "subsidized" student loans* $20 billion
Improve program integrity for Social Security and other programs $20 billion
Reform SSDI by disallowing SSDI/UI receipt, reducing retroactive benefits, and testing new approaches to support work $15 billion
Extend mandatory sequestration, which expires in 2029 $15 billion
Reduce electric power subsidies by divesting and reforming the power marketing administration & reinstated the Nuclear Waste Fee $15 billion
Reform veterans benefits by streamlining pensions and extending the current policy of rounding down COLAs $15 billion
Enact user fees for food safety, customs, border protection, spectrum, and other purposes $15 billion
Strengthen unemployment insurance financing though program integrity and a solvency standard for states $10 billion
Reduce student loan income loopholes by relying on combined Adjusted Gross Income for those who are married filing separately $5 billion
Total, Non-Health Savings $585 billion

*A version of this policy was proposed by President Obama.

While many parts of the President's budget are understandably controversial and partisan in nature, blind opposition to the entire budget is unwise and unproductive. The budget includes many sensible proposals that have the potential for bipartisan support and could help reduce deficits and improve policy at the same time. With deficits at $1 trillion and the national debt projected to rise to over 98 percent of the economy by 2030, lawmakers should seriously consider these reforms and work together to put many of them into law.