Update on Debt Ceiling Negotiations and Entitlement Reform

Update on Debt Ceiling Negotiations and Entitlement Reform

NAAOP

7/20/2011

Update on Debt Ceiling Negotiations and Entitlement Reform

After weeks of deadlock on debt-ceiling negotiations, yesterday a group of
Senators known as the Gang of Six released a bipartisan plan to raise the
debt ceiling coupled with a spending cut of $3.7 trillion from the U.S. debt
over a ten-year period. The group has been working on a plan since the
President's Fiscal Commission released their long term budget
recommendations last year, but faced a set-back when Senator Tom Coburn
(R-OK) left the group in June. Press reports indicate that Senator Coburn
rejoined the group before its leaders, Senators Mark Warner (D-VA) and Saxby
Chambliss (R-GA), released the framework for the bipartisan deficit
reduction plan.

The plan, which was received with moderate enthusiasm by President Obama and
on both sides of the aisle in the Senate, has breathed new hope into
negotiations to raise the debt ceiling before the August 2nd deadline, at
which point the nation faces default if Congress fails to act. Despite this
progress, some Democratic leaders in Congress question whether the Gang of
Six agreement will be ready for a vote by August 2nd.

The reception in the House of the Gang of Six proposal has been more tepid,
however, where the Republican majority passed on its own plan last night,
which calls for a balanced budget amendment, steeper spending cuts, and
budget process reforms in exchange for raising the debt ceiling. Known as
the Cut, Cap and Balance bill, the legislation is not expected to pass the
Senate and the President has already threatened to veto the legislation if
it arrives on his desk, an unlikely prospect given the makeup of the Senate.
The bill would cut mandatory spending by $35 billion in 2012 and $76 billion
in 2013, exempting Medicare and Social Security but not Medicaid. In future
years, spending would be limited to decreasing percentages of the GDP.

Leading up to the release of the Gang of Six's plan, President Obama called
for a grand bargain deal to cut the federal debt by $4 trillion over ten
years, and said that entitlement and tax reforms should be part of the deal.
Of all current proposals under consideration, the Gang of Six's plan is most
in line with that vision.

According to the Gang of Six's executive summary, the plan uses a two-step
legislative process that calls for: (1) an initial bill that immediately
cuts $500 billion from the U.S. budget; and (2) committees of jurisdiction
to report legislation within six months that would specify savings in
entitlement programs over 10 years, with specific parameters such as:

. Repeal of the CLASS Act, the long term insurance program authorized under
the Affordable Care Act;
. Reform or replacement of the Medicare Sustainable Growth Rate formula (at
a cost of $298 billion) and fully offsetting the costs with health savings;
. Find an additional $202 billion/$85 billion in health savings while
maintaining the essential health care services that the poor and elderly
rely upon; and
. Review of total federal health care spending starting in 2020 with a
target of holding growth to GDP plus one percent per beneficiary, with an
enforcement mechanism.

It is unclear if Congress and the President will reach a deal on lifting the
debt ceiling by August 2nd, or whether this plan will be the basic outline
of that deal. But it remains quite likely that any deal will include cuts to
and/or reforms of entitlement programs - in the short term or the long term
- and that stakeholders should remain vigilant for the next several days,
weeks, and months on efforts to protect Medicare and Medicaid.

Please visit our website at: www.naaop.org

NAAOP
1501 M Street, NW
7th Floor
Washington, DC 20005-1700
e-mail: <Email Address Redacted>
(800) 622-6740
(202) 624-0064 Phone
(202) 785-1756 Fax
www.naaop.org