Handicapping a 'grand bargain'

When people talk about a "grand bargain," they tend to imagine Congress moving on Social Security, Medicare and Medicaid simultaneously -- and perhaps tax reform, too. I think that's misguided. We're likelier to see the programs handled separately: Social Security, which needs the least in changes, is likely to see the most in reforms. Medicare, which is the most important driver of federal health-care costs, is the least likely to experience big changes. Medicaid is somewhere in the middle. And tax reform is in a different bucket altogether, with changes to the corporate code more likely than changes to the individual code. To see why, you have to consider them separately.

Medicare: The reality is that most of the best ideas for slowing the rate of cost growth in Medicare -- and using Medicare to slow the rate of cost growth in the health-care system as a whole -- are in the Affordable Care Act. Bundling care? It's in the law. Accountable Care Organizations? Yep. An independent board staffed by experts and able to make cost-savings changes to the system even if Congress gridlocks? Uh huh. An institute dedicated to funding promising new pilot programs, gathering evidence and then quickly ramping up the ones that work? That's in there, too. You could think of some further tweaks and technical changes, of course, and I hope Congress does. But short of privatizing the system and saving money by giving seniors checks that don't cover their health insurance -- a play that some Republicans like, but that I'd be surprised to see leadership endorse -- most of what we think might work is already being tried. The low-hanging fruit has been picked, and so has the medium-hanging fruit.

Medicaid: "Republicans seem to have settled on, at least as a talking points, instituting block grants to states for Medicaid," reports Politico. This is something George W. Bush proposed in 2004. Right now, the federal government, in partnership with the states, acts like any other insurer and pays the medical costs that members of Medicaid incur, and tries to control costs by negotiating better rates with providers and implementing various programs to make people healthier or manage disease. In a block-grant system, the federal government would stop paying those costs. Instead, it'd just give the states X amount of money, and if that sufficed, great, and if it didn't, too bad. As the Kaiser Family Foundation explains (pdf), "block grants limit federal spending to a predictable level that can be controlled without regard to actual costs or spending at the state level." The Urban Institute makes it clearer: "A block grant shifts financial risk from the federal government to the states." But even if Republicans can agree on this, Democrats won't go for it, so it's not likely to happen in the near term.

Social Security: Unlike Medicare (and, to a lesser degree, Medicaid), Social Security hasn't seen serious changes or reforms in decades. But there's a wide variety of options, and think tanks and groups on all sides have put a lot of work into developing plans that they think would appeal to their allies (here's one from the left-leaning Center for American Progress, here's one from the right-leaning American Enterprise Institute, and here's a bipartisan effort). Moreover, any discussion over Medicare and Medicaid will likely be dominated by arguments over the Affordable Care Act. Not so with Social Security. In fact, the administration called for talks on the issue in their budget. "We should come together now, in bipartisan fashion, to strengthen Social Security for the future," they said, going on to identify six principles that will guide their pursuit of a deal. That combination of bipartisan interest in a deal and general understanding of what policies could go into a deal makes a deal on Social Security fairly plausible, even if the program is objectively in much better shape than Medicare or Medicaid.

Tax reform: This is a whole different process than entitlements, and very unlikely to be rolled into the same bargain. The administration has been much more definitive on their desire o see corporate tax reform than individual tax reform. "Tonight," Obama said at the State of the Union, "I'm asking Democrats and Republicans to simplify the system. Get rid of the loopholes. Level the playing field. And use the savings to lower the corporate tax rate for the first time in 25 years – without adding to our deficit." Individual tax reform got a more passive endorsement: "This will be a tough job, but members of both parties have expressed interest in doing this, and I am prepared to join them," Obama said. A big part of the reason individual tax reform is so difficult right now is that the disagreement over the future of the Bush tax cuts makes a deal impossible: The two sides don't agree on the amount of revenue the individual tax code is supposed to collect in the coming years, and that agreement is a necessary precursor to a deal on the code itself.

If I were handicapping right now, I'd say some sort of deal on Social Security is fairly likely in the next year, but neither Medicare or Medicaid will see substantial changes. On the tax side, I'd give corporate reform a 30 percent chance of happening, and individual reform something very close to zero -- though I do think there's some chance that a serious process on tax reform begins this year, even if it won't culminate for some time yet.