The Bold Budget Cuts Congress Won't Touch

Written by Eli Lehrer on Wednesday March 9, 2011

Tied up in Washington's budget cut fight, neither party is focusing on the real problem: the large percentage of the budget devoted to mandatory spending.

As both parties engage in Kabuki theater over cuts to the 12 or so percent of the budget that consists of domestic, discretionary, non-defense, non-veterans, spending, they ignore the much larger percentage of the budget devoted to mandatory spending. Politicians, not without reason, see most entitlement spending as a third rail of American politics and it’s almost certainly true that massive reforms to major entitlement programs would anger all sorts of politically potent groups. That said, in the search for short-term budget savings, there are smaller reforms to entitlement programs that could make a meaningful difference. Here are three reasonably painless reforms—all of them well short of full entitlement reform—that could help reduce spending this year.

Cut Medicare Advantage Spending Now: Medicare Advantage seems like a good experiment: seniors dissatisfied with the “plain vanilla” Medicare get vouchers to pick out private health insurance plans that provide a similar core benefits package. But, after years of effort, it proved a failure: while some individuals benefit from the plans, the private plans, on average, were more expensive, delivered worse health outcomes, and were less satisfying to participants than Medicare. The single best part of the recent health care reform bill cut the program down to size by telling it to pay (on average) only 9 percent more than Medicare rather than 13 percent more. The real cuts, however, don’t start until next year and don’t go as deep as they should. Since people know the cuts are coming anyway, the incremental political price of doing this would be quite small and, on average, the people kicked off the Advantage Plans will be happier anyway. By implementing the deepest cuts now, Congress could save roughly $30 billion in the next fiscal year.

Cut Medicaid Institutional Care Spending: Medicaid, the health care program for families with children, the poor elderly and (in many places) the working poor without health insurance, spends over $100 billion a year on nursing homes and other institutional long-term care settings. A variety of funding rules make it much more attractive for people to receive care in institutional settings rather than in their own homes even though most would rather remain at home. Pulling off this shift will probably require increasing spending somewhat on home care even while making net spending cuts. But implementing some real changes for new beneficiaries could produce a net savings of around $10 billion.

Cut SNAP Spending 10 Percent by Limiting What can Be Purchased: The Supplemental Nutrition Assistance Program (SNAP)—formerly known as “food stamps” --costs about $75 billion a year and provides food spending money for just about anyone who needs it. It’s a naturally sympathetic program and has lots of friends in agribusiness. Largely because of agribusiness lobbying there are essentially no limits as to what non-alcoholic edibles the program’s funds can be spent on. Those who want to stock up on candy, sodas, and chips get to do so with other people’s tax money. This is stupid. The program’s overall funds should be cut and, to make sure it’s beneficiaries still get enough to eat, the Department of Agriculture should place limits on the ability to spend money on junk food.  (There’s no libertarian argument for letting anyone spend other people’s money freely.) Savings: About $7.5 billion.

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