Examining the fiscal cliff debate as an endgame

Reuters

U.S. Senate Majority Leader Harry Reid speaks to reporters in the Capitol in Washington, December 13, 2012. Congressional leaders and the Obama administration are attempting to negotiate a deal to avoid the "fiscal cliff" and work toward a deficit reduction package in the next session of Congress that begins in January.

Article Highlights

  • In an endgame, each side believes it gains leverage by waiting. This is more true in politics than in sports.

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  • If we get the rudiments of a debt reduction deal in place, we’ll have the opportunity for major bipartisan policy reform.

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  • An area crying out for reform is among the dual eligible, those who qualify for Medicare and Medicaid.

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I have been bemused over the past few weeks by the often breathless commentary and analysis on the ins and outs of the fiscal cliff negotiations.

Sports fans are all too familiar with endgames: they occur over the contracts of superstars and in the bargaining agreements between players and leagues. What characterizes endgames is they go on until ... the end! And sometimes over the end. The maneuvering before the end is simply theater.

In an endgame, each side believes it gains leverage by waiting. This is more true in politics than it is in sports, and it is particularly true in this situation of divided government and tribal politics. We have known for a long time what the framework of an agreement will be: $4 trillion in debt reduction over 10 years, roughly a third coming from revenues, along with significant amounts, perhaps a quarter of the total, from the major entitlement programs, especially Medicare and Medicaid.

There is room for negotiation within those boundaries. What baseline do the principals use? Do you count, which is appropriate, the $1.2 trillion or so in cutbacks in discretionary spending already achieved as part of the 2011 debt limit deal? How do you count the savings from the withdrawal from Iraq and Afghanistan? Likely, the president and Speaker John A. Boehner will hammer out a deal on taxes, reach some agreement on Medicare and Medicaid, whack the already-whacked discretionary spending categories and make up the difference with baseline adjustments.

The tax deal should be the easiest part. Agree on an amount — and $1.2 trillion seems obvious — and then get the Congressional Budget Office to figure out a few options to get there. It might mean raising the top rate to 38 percent, changing the threshold from $250,000 to $375,000, or capping deductions at $25,000 or $50,000.

Medicare and Medicaid are tougher. The Affordable Care Act includes ways to bend the Medicare cost curve, including accountable care organizations, incentives to move away from fee for service, and the Independent Payment Advisory Board. The CBO has refused to score any savings from these measures without hard data. Fair enough, but I recommend setting benchmarks each year for the coming decade; if the measures fail to reach the benchmarks, then implement automatic changes, including means-tested higher premiums and deductibles.

And what about the favored suggestion of Republican lawmakers to raise the Medicare age to 67? This change would actually cost money — costs shifted from Medicare to employers and to Medicaid, or in some cases, as the younger elderly go without insurance. But if the price of a deal is to raise the Medicare age, it ought to come with one proviso: Those between 65 and 67 who live in states that have not provided robust exchanges and have denied expansion of Medicaid should still get Medicare coverage.

In addition, many people in their 50s and early 60s have lost their jobs in this economic downturn. COBRA, a hugely expensive option, will run out for them before they reach 65, much less 67. Leaving these people without an option for insurance is simply wrongheaded.

The other area crying out for reform is among the dual eligible, those who qualify for Medicare and Medicaid. One key is providing more incentives for home care, including day care for patients that enables families to work and keep their loved ones at home. A bipartisan commitment to do so would save money and improve lives.

Of course, we will not have a full-blown debt reduction plan by the end of the year. But if we can get the rudiments in place, we will have a real opportunity for major bipartisan policy reform in key areas. Given the continuing dysfunction, that is no sure thing. But it is at least a tantalizing possibility.

Norman Ornstein is a resident scholar at the American Enterprise Institute.

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