Recognizing The Entitlement Peril

By 2040 the big three programs could eat up nearly 20% of GDP

Given the Bush Administration's flagging ratings and its reluctance to make waves in an election year for the GOP-controlled Congress, most Washington observers figured that little of substance will be done this year to address the spending growth in federal benefit programs. Thankfully, they were only half right. It appears the

White House is at least keeping alive the possibility that it might begin to address entitlement reform this year.

To be sure, the Administration's most high-profile move, the bipartisan commission on entitlement spending unveiled during the President's State of the Union message, is actually the least important event here. With a few notable exceptions such as the 9/11 Commission, such bodies have long been Washington's way of handing off issues that the pols consider too hot to address politically. The entitlement study will undoubtedly tell us that the current course of spending for the big three programs -- Social Security, Medicare, and Medicaid -- is unsustainable. Disturbing and true, but we've long known that.

Instead, two relatively unheralded provisions in the President's Feb. 6 budget proposal to Congress suggest that the Administration is ready to test reactions to any tweaking of the politically contentious programs. First, Bush proposed cutting reimbursements to health-care providers in the Medicare program by about $26 billion. Although that and other proposed cuts would slow Medicare growth only by $36 billion over five years (overall costs will still rise sharply), it's a significant move nonetheless in an election year.

This wouldn't be the first time Washington has battled over how much to pay doctors, hospitals, and other Medicare providers. In the 2006 budget, which Congress finally approved last week, payments to doctors were a major sticking point. The law first called for cutting their compensation by 4.4%. By the time the dust cleared, however, the payments were only frozen. So if Bush is serious about getting savings from providers this year, he must be prepared to battle some of the nation's most powerful lobbies.

Also in its budget, the White House proposed higher Medicare premiums for the affluent. Plenty of precedents exist in our progressive tax system for those who make more to pay more, so this isn't revolutionary. But it could strike a nerve with voters long wary of applying means tests to recipients of entitlements. More important, it's a recognition that the Administration hasn't forgotten that Medicare, whose costs are soaring because of health-care inflation and new drug benefits, is actually more of a present danger to the nation's long-term fiscal health than Social Security.

Indeed, if we do nothing, the big three programs are forecast to eat up nearly 20% of America's gross domestic product by 2040, roughly the share consumed by all federal spending today. In other words, without entitlement reform or huge tax increases, we would basically just be able to fund the big three after shutting down the rest of Washington (including the Pentagon). Obviously, that's not going to happen, so it's time for Washington to get serious about putting the brakes on these out-of-control entitlements before they cause the economy to crash and burn. The President's budget proposal, while not nearly enough, is a much-needed start. Congress should follow his lead.

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