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Editorial: Republicans can have their tax cuts and benefits, too

The Editors, Bloomberg Opinion on

Published in Op Eds

Congressional Republicans face some tough math. They want to extend tax cuts, set to expire this year, that would add perhaps $4.5 trillion in new deficit spending. To offset such extravagance, they plan to come up with $2 trillion in spending cuts. Can it be done, as the White House suggests, without touching benefits? Possibly — but not the way lawmakers appear to be going about it.

House Republicans passed a budget blueprint that constitutes the first step toward a so-called reconciliation bill, which will allow them to extend the expiring provisions of the 2017 Tax Cuts and Jobs Act with a simple majority. Although the plan directs the committee that oversees government health-insurance programs to find $880 billion in savings, it offers no specific proposals. Plenty of ideas are now circulating, most of which focus on cuts to Medicaid, the federal entitlement for the poor.

That Medicaid has become a potential target for spending cuts isn’t unreasonable. The program accounts for almost a fifth of total health-care spending and 8% of the federal budget — or some $600 billion annually. Yet Medicaid is also hugely important, providing health coverage for 1 in 5 Americans and 39% of children. It has likewise become a major source of financing to states, which administer their own programs but split costs with the federal government. Any reductions should be undertaken carefully to avoid disruptions to care.

Unfortunately, most proposals fall short of that goal. Chief among them is a plan to set a per-enrollee cap on federal spending — that is, an absolute sum rather than a percentage of state outlays. Although the plan would cut federal expenditures by up to $1 trillion over a decade, it would shift risks to states, which are likely to cut programs and slash payments to providers. As a result, more than 15 million enrollees could lose coverage — 5 million of them children — and many will go uninsured, leading to worsening health, costly emergency-room visits and loss of income to providers for uncompensated care.

For these and other reasons, previous attempts to implement such caps have failed. Other proposals — such as lowering the 50% “floor” for the federal contribution or eliminating the increased rate for certain populations under the Affordable Care Act — invite similar problems.

That isn’t to say Medicaid expenditures couldn’t use sharper oversight. Some states inflate their Medicaid spending — and thus, the federal share — by imposing extra taxes on providers. States then “repay” providers at higher rates, sometimes rivaling commercial levels. Eliminating such taxes outright would compromise what’s become a significant, if easily gamed, source of funding. But lowering the rate gradually would save more than $200 billion through 2034. Better yet would be revoking the carve-outs that allow overpayments to continue.

 

Regrettably missing from the cornucopia of proposals are reforms to Medicare, which constitutes 14% of the federal budget and has seen spending per enrollee rise 65% faster than Medicaid since 2008. Its main trust fund is slated for insolvency by 2036. A serious effort to address Medicare’s flaws — in particular its profligate payment model — will evidently have to wait.

The good news is that — unlike the proposed cuts to Medicaid — more modest Medicare reforms could still yield significant savings without reducing coverage. As one example, a bipartisan proposal to charge Medicare the same price for a service, no matter where it’s provided — so-called site-neutral payments — could save up to $150 billion over a decade. Or take Medicare Advantage “upcoding.” Insurers who administer the privatized program diagnose seniors with an encyclopedia of ailments that result in chronic overpayments. Narrowing these disparities could save taxpayers tens of billions annually.

With some thoughtful reform — and a bit of good faith — this effort could become the start of a much more ambitious fiscal overhaul. Or it could amount to another round of budget-busting tax cuts. Republicans will need to choose.

____

The Editorial Board publishes the views of the editors across a range of national and global affairs.


©2025 Bloomberg L.P. Visit bloomberg.com/opinion. Distributed by Tribune Content Agency, LLC.

 

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