(Updates with comments from Coburn in 13th paragraph.)
May 25 (Bloomberg) -- Vice President Joe Biden set a goal of at least $1 trillion in budget cuts from negotiations with congressional leaders on the federal debt as talks yesterday turned to Medicare, a contentious issue that risks replicating a partisan divide on Capitol Hill.
Democrats in the meeting ruled out concessions on Medicare without Republican agreement to raise tax revenue, a step the party’s leaders so far have rejected, according to someone familiar with the talks who spoke on condition of anonymity. Biden underscored the issue in remarks to reporters afterward.
“I made clear today that revenues have to be in the deal,” Biden said, even as he expressed optimism about prospects for the talks. Negotiators are on a pace “to get above $1 trillion” in cuts for a “down payment on the process,” he said. There is there is no agreement yet, a participant in the talks who wasn’t authorized to speak publicly said on condition of anonymity.
House Majority Leader Eric Cantor, a Virginia Republican, said he is “confident we can get to over $1 trillion in immediate cuts,” though he told reporters that “tax increases cannot pass the House.”
The focus on the politically charged issue of entitlements, which last week undermined a similar five-month attempt at a bipartisan deal, will test whether Republicans and Democrats can find common ground amid an increasingly partisan battle in Congress over the future of Medicare.
The Senate is preparing to vote this week on a House Republican budget crafted by Representative Paul Ryan that would privatize Medicare for people who turn 65 starting in 2022. The plan was a leading issue in a special election yesterday for a vacant House seat in New York.
As the meeting broke up, Representative Chris Van Hollen of Maryland said the tone of the talks “remains positive.”
“We’ll tackle a series of issues,” he said, citing one example from President Barack Obama’s proposal -- a rebate for so-called dual eligibles, or people who qualify for both Medicare and Medicaid.
Republicans have demanded reductions in spending as a condition for passing legislation to raise the $14.3 trillion statutory debt limit. Treasury Secretary Timothy Geithner projected on May 2 that the government will run out of options to avoid a default if the limit is not raised by early August.
The battles stirred by Ryan’s Medicare proposal create an obstacle to reaching a bipartisan agreement that includes large long-term savings on the deficit, said Jim Kessler, vice president for policy at Third Way, a Washington research group that describes itself as advocating “moderate policy.”
‘Danger of Unraveling’
“We are in a week in which the center is in danger of unraveling,” Kessler said. “Republicans feel they can’t retreat from the Ryan budget, and Democrats feel they have Republicans by the throat on Medicare.”
The Biden group “is right now the primary game” in town after a bipartisan group of senators seeking a long-term debt deal stalled last week with the defection of Republican Senator Tom Coburn of Oklahoma, said House Minority Whip Steny Hoyer, a Maryland Democrat.
Coburn said today on Bloomberg Television that he left the talks as a “kind of a sabbatical” after concluding the senators were at an impasse over entitlement programs. “We should be honest with the American people that we are going to have to change those if we want a secure future,” he said.
So far, the group of six House and Senate members meeting with Biden -- who include Cantor and Senate Finance Committee Chairman Max Baucus of Montana -- has found common ground on $200 billion in spending cuts, including agriculture subsidies, congressional aides said.
White House Budget Director Jack Lew said that while it will take “weeks” to resolve the difference, “there’s a lot of trust being built up.”
Separately, Senator Dick Durbin of Illinois, the chamber’s second-ranking Democrat, said a group of senators formerly known as the “Gang of Six” -- now down to five with Coburn’s departure -- will met today for a second day to discuss a path forward.
Negotiators are seeking consensus against a bitter political backdrop. Democrats have seized on the Ryan proposal as a line of attack, and even some prominent Republicans have demonstrated uneasiness about the idea.
Backlash for Gingrich
At the same time, conservatives in the party showed the peril of abandoning Ryan’s plan. Republican presidential candidate Newt Gingrich initially criticized it as “right-wing social engineering” in a May 15 appearance on NBC’s “Meet the Press” only to reverse himself following a backlash.
The Medicare issue played a critical role in yesterday’s special election, as Democratic candidate Kathy Hochul defeated Republican Jane Corwin and Tea Party candidate Jack Davis after highlighting Corwin’s support for the Republican plan.
The seat had long been held by Republicans and Republican presidential candidate John McCain carried the district in the 2008 election.
The negotiators led by Biden ultimately will have to come up with some cuts to the program, and it’s likely to be “trimming around the edges,” said Ira Loss, a health policy analyst with Washington Analysis LLC, a Washington-based investment research firm.
Squeezing Out Savings
Last year Obama signed a health-care overhaul measure that the nonpartisan Congressional Budget Office estimated would already squeeze $483 billion from Medicare and Medicaid over 10 years.
Maine Senator Susan Collins, a Republican who has said she will vote against the Ryan proposal if no changes are made, said there are other options on Medicare -- “from means testing to better controls over wasteful payments” -- that Republicans can support.
In its report last December, the president’s deficit commission proposed almost $500 billion in health-care savings without overhauling Medicare and Medicaid, said Marc Goldwein, who served as the panel’s associate director.
“There is a lot of room between what Congressman Ryan proposed and doing nothing,” said Goldwein, now policy director at the Committee for a Responsible Federal Budget in Washington, a bipartisan research center that examines issues that have a significant impact on fiscal policy.
Both Obama and the Republicans have proposed overhauling the U.S. medical malpractice system, which could save up to $55 billion over a decade. In addition, restricting what are known as “Medigap” insurance plans could save up to $130 billion over 10 years.
Those policies provide supplemental insurance that are used to cover Medicare’s deductibles and cost-sharing. Because they shield patients from the cost of their care, they actually raise total spending, said Henry Aaron, a senior fellow at the Washington-based Brookings Institution who studies the economics of health care.
The fiscal commission recommended limiting how much Medigap plans are allowed to cover and making patients pay co-pays and deductibles.
Baucus said yesterday that he is optimistic about a deal. “There’s opportunity to get a result, to get a solution here,” he said.
--With assistance from Laura Litvan and Drew Armstrong in Washington. Editor: Leslie Hoffecker, Jim Rubin.
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