BUDGET FRAMEWORK

 

THE CLINTON-GORE ADMINISTRATION’S BUDGET FRAMEWORK

June 26, 2000

 

Table of Contents

 

1. The Clinton-Gore Administration’s Budget Framework

2. President Clinton Makes a Constructive Offer to Address Priorities for American Families in a Framework of Fiscal Discipline

3. Taking Medicare Off-budget and Dedicating the Resulting Interest Savings to Extend Its Solvency

4. Improving the President’s Medicare Prescription Drug Benefit and Provider Payments

Appendix

A1. The Clinton-Gore Administration: Paying Off the Debt By 2012

A2. The Clinton-Gore Economic Record: What a Difference Seven Years Makes

 

THE CLINTON-GORE ADMINISTRATION’S BUDGET FRAMEWORK

June 26, 2000

The Clinton-Gore Administration’s budget framework continues the three-part strategy put in place at the beginning of the Administration: getting our fiscal house in order and keeping it that way, investing in people, and opening markets abroad. This strategy has helped foster the longest economic expansion in history, contributing to the lowest unemployment rate in over thirty years.

Specifically, the budget framework would make investments in key priorities while putting America on track to eliminate the debt by 2012 – one year earlier than projected in the February budget.

 

The Six Key Elements of the Clinton-Gore Administration’s Budget Framework

 

1. Pay off the debt by 2012

2. Take Medicare off-budget as the next step in locking in fiscal discipline and debt reduction

3. Extend the solvency of Social Security to at least 2057 and Medicare to at least 2030

4. Improve the President’s prescription drug benefit and health care provider payments

5. Establish a $500 billion Reserve for America’s Future

6. Invest in key priorities like education, expand health coverage, and provide targeted tax relief

(1) Pay off the debt by 2012. The President has a fiscally responsible plan to pay off the debt held by the public by 2012, one year earlier than was projected in the February budget.

 

(2) Take Medicare off-budget as the next step in locking in fiscal discipline and debt reduction. Following the leadership of Vice President Gore, President Clinton is proposing to take Medicare Part A off-budget. This would mean that the projected $403 billion Medicare surplus will be off-budget, like the Social Security surplus, and therefore, no longer counted as part of the funds available for other purposes. Under this plan, the Medicare surplus will be dedicated to paying down the publicly held debt to help strengthen the life of the Medicare program.

 

(3) Extend the solvency of Social Security to at least 2057 and Medicare to at least 2030. The President would ensure that the benefits of the debt reduction that are due to Social Security and Medicare are used to extend their solvency by:

 

(4) Improve the President’s Medicare prescription drug benefit and provider payments. The framework allocates a net $264 billion over ten years for Medicare prescription drug benefits and other reforms (with an additional $115 billion in Medicare solvency transfers that go to debt reduction). The President will improve his voluntary and affordable Medicare prescription drug benefit by specifying that no Medicare beneficiary will pay more than $4,000 in out-of-pocket drug costs; maintaining the beneficiary premium at the same level even with the enhanced benefit; starting the program one year earlier; and providing immediate payments to managed-care plans to provide a prescription drug benefit, for a total cost of $253 billion over 10 years. The President is also proposing $40 billion over ten years to further mitigate the impacts of the Balanced Budget Act of 1997 reductions for Medicare and Medicaid providers. Finally, the President’s proposal maintains the key elements of the Administration’s Medicare reform plan, such as the increased competition and anti-fraud provisions from the February budget, saving $29 billion over 10 years.

 

(5) Establish a $500 billion Reserve for America’s Future. The framework sets aside $500 billion over ten years that could be used for key national priorities, such as retirement savings, additional targeted tax cuts, investments in education, research, health and the environment, or further debt reduction. There are always uncertainties in budget and economic projections, especially when they cover a long period into the future. This reserve provides a margin of insurance: if the surplus is not as large as projected, then any use of the reserve could be reduced. The allocation of the reserve should be subject to a full debate over national priorities this year, given the competing visions of the use of these funds.

 

(6) Invest in key priorities like education, expand health coverage, and provide targeted tax relief. The President’s budget framework maintains his commitment to his proposals from the February budget including:

 

PRESIDENT CLINTON MAKES A CONSTRUCTIVE OFFER TO ADDRESS PRIORITIES FOR AMERICAN FAMILIES IN A FRAMEWORK OF FISCAL DISCIPLINE

June 26, 2000

Today President Clinton will make a constructive offer to the Congress to lock in our fiscal discipline and debt reduction and address priorities for American families. The President’s offer builds on bipartisan consensus on three issues: we should lock in Social Security and Medicare surpluses for debt reduction, American families should have marriage penalty tax relief, and Seniors need an affordable prescription drug benefit. The President will offer that if the Congressional leadership agrees to an overall framework of fiscal discipline that takes Medicare off-budget, the President would be willing to sign broader marriage penalty relief legislation if the Congress will pass his prescription drug plan.

The precondition: lock in added debt reduction by taking Medicare off-budget. The Vice President has proposed taking Medicare off-budget to ensure that its surpluses are used to reduce the debt. Last week, the House virtually unanimously endorsed this principal. The President will ask the Congressional leadership to agree to take Medicare Part A – which covers hospital insurance – truly off-budget. This would protect the $403 billion Medicare surplus for debt reduction. If this legislation was combined with a commitment to lock away Social Security surpluses for debt reduction, as proposed by the President, then the total debt reduction would be $2.7 trillion over ten years.

Accept the President’s proposal for a Medicare prescription drug benefit. The President has proposed a new, meaningful voluntary Medicare prescription drug benefit. This long-overdue benefit would provide coverage for 50 percent of prescription drug costs up to $5,000 when fully phased in. It would provide protections against catastrophic drug expenses by limiting out-of-pocket spending to $4,000. Beneficiaries would pay a premium of $25 per month in the first year for this coverage which would assure access to discounts, needed drugs, and local pharmacies. This Medicare drug benefit is part of the Administration’s Medicare reform plan that improves provider payments by $40 billion, makes the program more competitive and efficient, and extends the life of Medicare’s trust fund.

Broader marriage penalty relief legislation. The President is committed to marriage penalty relief. His February budget included a $43 billion proposal to provide targeted marriage penalty relief. The President believes that the Republican marriage penalty proposals, standing alone, are too large, too untargeted to people who specifically face marriage penalties, and outside of the context of fiscal discipline. However, if a broader marriage penalty bill, along the lines reported out by the Senate Finance Committee or passed by the House of Representatives, is passed as part of a framework that locks in additional debt reduction by taking Medicare off-budget and provides the President’s proposal for a Medicare prescription drug benefit, then the President would be willing to sign it.

TAKING MEDICARE OFF-BUDGET AND DEDICATING THE RESULTING INTEREST SAVINGS TO EXTEND ITS SOLVENCY

June 26, 2000

Following the leadership of Vice President Gore, President Clinton is proposing to take Medicare off-budget. This would mean that, like the Social Security surplus, the projected $403 billion Medicare surplus would, like the Social Security surplus, not count towards the on-budget surplus and therefore could no longer be diverted for other purposes. Taking the Medicare surplus off-budget would ensure that Medicare is protected for paying down the debt to help strengthen the life of the Medicare program. The President would also dedicate the total interest savings that result from using the Medicare surplus for debt reduction to its trust fund, contributing towards extending its life to at least 2030.

 

What Taking Medicare Off-budget Means

On-budget Surplus (baseline projections)

Unified Surplus

  $4.193 trillion

   Social Security Surplus (includes a small Postal Surplus)

- $2.320 trillion

    Medicare HI Surplus

- $0.403 trillion

On-budget Surplus

   $1.470 trillion

 

 

Extending the Solvency of Medicare to at Least 2030

 

Building on Progress

 

IMPROVING THE PRESIDENT’S MEDICARE PRESCRIPTION DRUG BENEFIT AND PROVIDER PAYMENTS

June 26, 2000

The President will improve his comprehensive plan to strengthen and modernize Medicare by investing additional surplus – available in part due to lower Medicare growth and a healthier trust fund – to his voluntary Medicare prescription drug proposal and increasing of certain provider payments affected by the Balanced Budget Act of 1997 (BBA). Specifically, the President will invest an additional $58 billion over 10 years to: (1) specify his limit on out-of-pocket prescription drug spending at $4,000; (2) maintain the beneficiary premium at the same level even with the enhanced benefit; (3) start the program one year earlier; and (4) provide immediate payments to managed care plans to provide a prescription drug benefit. He will also add $40 billion over 10 years to increase Medicare health care provider payments in the wake of the BBA. The President will reiterate his commitment to critical structural reforms that will be needed as the baby boom generation retires. Finally, he will drop savings proposals that are no longer needed. Altogether, the President would invest $264 billion over 10 years – less than one-fifth of the on-budget surplus. Combined with taking Medicare off-budget and extending the life of its trust fund, this plan represents the most important set of changes to Medicare in the program’s history.

IMPROVED MEDICARE PRESCRIPTION DRUG BENEFIT

The President will add $58 billion over 10 years ($39 billion over 5 years) to his voluntary, affordable Prescription drug benefit for all beneficiaries. His original proposal would cover half of all cost up to $5,000 when fully phased in, at a premium that begins at $25 per month with extra protections for low-income people. In addition, the President’s February budget set aside a surplus reserve to develop protections against catastrophic prescription drug costs. He will add to this plan by:

Altogether, the new total cost of the Medicare prescription drug benefit would be about $253 billion over 10 years ($79 billion over 5 years).

IMPROVING HEALTH CARE PROVIDER PAYMENTS

The Balanced Budget Act of 1997 (BBA) helped to eliminate the deficit, created the State Children’s Health Insurance Program, and reduced and restructured Medicare and Medicaid payments to health care providers. Many of the provider payment changes were justified and have contributed to improved efficiency and the unprecedented fiscal health of the Medicare trust fund. However, some of the policies may have the potential to affect the quality of and access to health care services. To address this, the President has proposed to dedicate $40 billion over 10 years ($21 billion over 5 years) to a provider payment initiative designed to ensure adequate reimbursement to hospitals, rural providers, teaching facilities, home health agencies, nursing homes, managed care plans, and others.

The proposal, designed to ensure access to high-quality care, clearly illustrates that adequate financing for provider payments need not conflict with necessary funding for a long-overdue, voluntary Medicare prescription drug benefit.

COMMITMENT TO STRUCTURAL REFORMS TO MEDICARE

Last June, the President proposed a series of far-reaching proposals to structurally reform Medicare provider payment. Specifically, the plan would give traditional Medicare essential payment tools to improve quality and efficiency like adding encouraging disease management and innovative payment options for doctors and hospital. It would also create a system called "Competitive Defined Benefit" plan that would allow managed care plans to compete on price and quality and get paid based on their bids rather than a complex, statutory formula. He also proposed in his budget policies, supported by the Inspector General, General Accounting Office and others, to reduce Medicare fraud, waste and overpayments. Finally, his plan included rational cost sharing changes and benefit improvements (e.g., extension of coverage of immunosuppressive drugs and people with disabilities who go back to work). These policies remain an important part of the President’s plan to strengthen and modernize Medicare. However, traditional provider payment policies for 2003 through 2007 appear to no longer be needed given the reduction in projected Medicare spending and are thus no longer in the plan. In addition, the plan does not include proposals to repeal the Balanced Budget Refinement Act managed care risk adjustment delay, to reduce bad debt payments, and to create preferred provider arrangements in Medicare. These changes reduce net savings by $30 billion over 10 years. The net Medicare effect of the reform policies in the package therefore is $29 billion over 10 years ($8 billion over 5 years).

THE CLINTON-GORE ADMINISTRATION:

PAYING OFF THE DEBT BY 2012

June 26, 2000

LARGEST UNIFIED SURPLUS EVER AND THE ONLY ON-BUDGET SURPLUS SINCE MEDICARE WAS ESTABLISHED

 

LARGEST DEBT REDUCTION EVER

 

REDUCING SPENDING WHILE CUTTING TAXES FOR MIDDLE-INCOME FAMILIES

 

WHAT FISCAL DISCIPLINE MEANS FOR AMERICA

 

WHAT THE EXPERTS SAY

Experts agree that President Clinton’s 1993 economic plan helped reduce the deficit, lower interest rates, spur business investment, and strengthen the economy. The economy and the budget are now working in a virtuous circle – lower deficits have led to lower interest rates, which led to faster business investment, which led to faster growth, which led to more revenues and lower spending and even lower deficits. Experts agree that the President’s 1993 Economic Plan helped create this virtuous circle:

 

THE CLINTON-GORE ECONOMIC RECORD:

WHAT A DIFFERENCE SEVEN YEARS MAKES

June 26, 2000

After seven and a half years, the results of President Clinton and Vice President Gore’s economic leadership for the American people are clear. In 1992, when Bill Clinton was elected President, the American economy was barely creating jobs and wages were stagnant. His bold, three-part economic strategy focused on establishing fiscal discipline; investing in education, health care, science and technology; and opening foreign markets so that American workers have a fair chance to compete abroad. Seven and a half years later the results of this strategy are clear:

Deficits Replaced By Surpluses: Keeping Us On Track to Be Debt Free by 2012

Jobs Are Up: 22 Million Created Since January 1993

Faster Economic Growth: 3.9 Percent Per Year

Private-Sector Growth Is Up: 4.5 Percent Per Year

Equipment and Software Investment Is Growing Faster Than Ever

Government Spending: Lowest in Over Three Decades

Taxes for Typical Families: Lowest in Over Two Decades

Homeownership Is Up: The Highest in American History

Inflation is Down: The Lowest Core Rate In 35 Years

Welfare Rolls Dropped Dramatically: Lowest Since 1969

Unemployment Is Down: The Lowest Rate in 30 Years

Unemployment for African-Americans the Lowest on Record

Unemployment for Hispanics Recovered From Record Highs to Achieve Record Lows

Real Wages Rising Again: Fastest Growth in Two Decades

Poverty For African-Americans Dropped to Lowest On Record

Poverty For Hispanics Dropped to Lowest Since 1979

Poverty For Single Mothers is the Lowest On Record

Family Income Up More Than $5,000 Since 1993




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