Trump's budget plan has already generated headlines for its cuts to social safety net programs, but the most notable thing about it may be what it doesn't cut: namely, defense spending, Social Security's old-age benefit, or Medicare. The president's plan plows savings from reductions in discretionary spending into increases in the military budget while leaving America's largest entitlement programs essentially untouched.
The differing treatments of Medicare and Medicaid, in particular, is a sign of both the new budget's mistaken fiscal orientation and its cynical political priorities, as well as how the two intertwine: Trump and other Republicans aren't willing to cut the programs that are the biggest drivers of the long-term debt because they are the programs that benefit Republican voters the most. It's bad health care policy and ugly politcs.
Trump's budget starts by assuming that the Medicaid reforms included in the American Health Care Act (AHCA), the House bill to rewrite Obamacare, would go into effect. If the AHCA became law, the bill, which passed the House early this month, would convert Medicaid from a program of essentially unlimited federal matching funds into a system of per-capita block grants, meaning that federal payments to states would continue but be capped based on the number of individuals enrolled in the program, with increases determined by formula.
The case for these reforms is that Medicaid, in its current form, is a dysfunctional mess. The best evidence is that, on average, the program, a jointly financed federal-state program for the poor and disabled, does little if anything to improve physical health outcomes for beneficiaries.
As conservative health policy wonk Avik Roy has argued, the AHCA reforms would finally put Medicaid on a budget while giving states more flexibility to experiment with the program, and would represent perhaps the most significant entitlement reform in modern history.
The case against, as Cato Institute health policy scholar Michael Cannon argues, is that the per-capita structure might inadvertently create incentives for states to continue expanding the program in order to increase federal funding. And that's if they ever went into effect at all, a real question, given that the bill delays the reforms until 2020.
In reality, this may all be moot: Republican Senators and governors have signalled discomfort with the way the House bill treats Medicaid, so it's an open question whether they will ever become law.
But Trump's budget goes significantly beyond the AHCA in ways that don't entirely add up. It also assumes another $610 billion in additional savings from reforming the program beyond the GOP bill, and it assumes $250 billion in savings from rewriting Obamacare—a dubious figure given that the most recent version of the AHCA was scored by the Congressional Budget Office as reducing the deficit by $150 billion.
Meanwhile, the budget basically leaves Medicare untouched, and might even give it a boost. It repeals the Independent Payment Advisory Board (IPAB), which would presumably eliminate the cap on Medicare spending growth that IPAB was designed to enforce.
Repealing IPAB is a longtime conservative goal, and there are lingering questions about the legality of its structure. But the immediate practical effect of this would be to eliminate one of the few mechanisms designed to limit the growth of Medicare spending without proposing any mechanism to replace it. As conservative health policy wonk Chris Jacobs dryly notes in his analysis of the budget's health care provisions, despite concerns about IPAB, "some conservatives may also oppose efforts to repeal a spending constraint on our nation's largest health care entitlement without any similar efforts to control the program's large (and growing) outlays." Trump's budget, in other words, would create conditions that might allow Medicare to grow even faster.
The president's fiscal plan, then, digs deep into Medicaid while making no serious cuts to Medicare—despite, as Jacobs writes, the fact that Medicare will spend $9 trillion over the next years, and is staring down insolvency in just over a decade. Medicaid spends less each year than Medicare and is projected to grow less rapidly than Medicare over the next decade. Indeed, Trump's proposed cuts to Medicaid can be understood as attempts to preserve and prop up Medicare in its current form.
In fairness to Trump, he promised on the campaign trail not to cut Medicare, and this budget delivers on that promise. But he also promised not to cut Medicaid. It's not too hard to understand why Trump chose to propose the cuts that he did.
Medicare is a federally run health care program for seniors, and seniors tend to be Republicans and Trump supporters. Many Republicans have warm feelings toward the program, with 46 percent saying they support expanding the program to cover all Americans, which would create a national single-payer system. Medicaid beneficiaries, on the other hand, are poor and heavily concentrated amongst minorities. Trump's budget, then, is an effort to preserve federal benefits for a group that heavily supports him politically by cutting benefits to a group that does not.
That's a problem for the nation's finances, because it leaves the largest driver of the debt untouched. It's ugly politics, because it treats government as a dealer of zero-sum handouts, pitting the interests of one group of Americans against another. And it's poor health policy, because it helps perpetuate an environment where deep systemic reforms remain essentially impossible. It's not exactly new for Republicans. (Amongst the GOP's chief criticisms of Obamacare was that it cuts Medicare.) But it is telling.
In his analysis, Jacobs describes Trump's proposals as "functionally incoherent." As a matter of policy, he is no doubt correct. As a matter of shallow short-term politics, Trump's budget makes all too much sense. The underlying mentality is not one that is oriented towards reforming, limiting, or improving government. Instead, it's one that treats the federal budget as a vehicle for handouts to supporters while effectively disregarding the nation's long-term fiscal challenges. Trump isn't draining the swamp. He's just shoveling the muck around.