Filed Under:Annuities, Fixed Indexed

Gang of Six: Kill CLASS; Cut Social Security, Health Spending

The Senate "Gang of Six" negotiators have proposed reducing federal spending by eliminating a long term care program created by the Patient Protection and Affordable Care Act (PPACA) and by slashing Medicare and Social Security spending.

The senators-- Kent Conrad, D-North Dakota; Dick Durbin, D-Illinois; Mark Warner, D-Virginia; Saxby Chambliss, R-Georgia; Mike Crapo, R-Idaho; and Tom Coburn, R-Oklahoma--said when they unveiled the proposal Tuesday that it could cut projected federal spending by $3.7 trillion over 10 years

The senators are calling for stabilizing U.S. publicly held debt by 2014, and for reducing publicly held debt to about 70% of gross domestic product (GDP).

Sen. Jeff Sessions, R-Ala., the highest ranking Republican on the Senate Budget Committee, has said he can find only $1.2 trillion in cuts in the proposal

Some have suggested that the proposal could provide political cover for senators who want to vote to raise the statutory debt ceiling.

If Congress does not raise the debt ceiling, the United States could begin defaulting on obligations as soon as Aug. 2, Obama administration officials say.

At press time, copies of the proposal and the executive summary did not appear to be available on congressional websites or other government sites.

A copy of the executive summary posted by the Kaiser Health Network outlines a two-step legislative process. The first would be an immediate $500 billion spending cut. The second would be passage of a comprehensive deficit reduction bill that would restructure the tax code and federal spending programs.

The proposal calls for efforts to change Social Security to move on a separate track.

The proposal also would establish an elaborate procedure for considering proposal-related measures on the Senate floor.

One specific recommendation calls for eliminating the Community Living Assistance Services and Supports Act (CLASS Act) long term care program. The CLASS Act is supposed to create a voluntary, worker-funded LTC program. Critics have argued that the program would be actuarially unsound and eventually would have to charge higher and higher rates as healthier workers began to avoid it.

The proposal would encourage Congress to reform or replace the Medicare Sustainable Growth Rate formula and offset the cost with savings on other health care expenditures. A parenthetical note in the proposal seems to suggest that drafters believe that move could save $298 billion over 10 years.

The drafters say the government also should seek $202 billion in additional health savings while maintaining the essential health care services on which the poor and elderly depend.

In the executive summary, drafters say the government also must reduce the deficit by reforming the tax code, by broadening the tax base and lowering tax rates.

Policymakers could broaden the tax base through the reform of "tax expenditures"--revenue lost through tax deductions, exclusions and exemptions for activities such as buying health insurance, giving to charity and saving for retirement. But proposal drafters say Congress should "reform, not eliminate," those types of tax expenditures.

Under the proposal, the Senate Budget Committee would have to report legislation within 6 months that would review total federal health care spending starting in 2020. A key objective of the review would be to hold health care spending growth close to the rate of growth in GDP.

If any Senate committee failed to report entitlement program savings, then the needed deficit reduction would be achieved through "across the board cuts to programs in that committee's jurisdiction," proposal drafters say.

Programs that benefit low income families would be exempt from the across-the-board cuts.

The Gang of Six notes that the government is adopting a "chained consumer price index" (CPI) starting in 2012.

According to the Congressional Budget Office, the shift to a chained CPI (which the proposal describes as a "more accurate measure of inflation" than the current CPI index) would result in the annual adjustment growing, on average, about 0.25 percentage points per year slower than the current CPI.

The proposal would exempt Social Security from the shift for 5 years, then phase in the shift over the next 5 years. The proposal would additionally provide a minimum Social Security benefit equal to 125% of the poverty line for 5 years.

If the comprehensive deficit reduction bill were passed--the proposal stipulates a majority of 60 votes in the Senate--then the Senate Finance Committee would be directed to reform Social Security with a view to ensuring "75-year solvency of the program."

The committee would have to review the health of the Social Security trust fund every 10 years.

If the committee determined that reforms were not meeting objectives, a group of "at least 5 senators from each party" would be permitted to introduce a resolution with recommendations for reforms.

The proposal also would bar substitute amendments that decrease Social Security solvency.

Other federal budget coverage from National Underwriter Life & Health:

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