If entitlement reform is too hard, lawmakers can take baby steps

If entitlement reform is too hard, lawmakers can take baby steps

The Washington Post reports that the U.S. deficit is headed to $1 trillion this year, the highest level since 2012. Republicans were furious about the large deficits under President Obama while he sought little to no spending constraint, but recently their focus has been elsewhere. How can we steer the fiscal outlook back toward sanity? As I see it, there are two options.

The first option is to go big. Reform Social Security to slow the growth of future benefits, overhaul Medicare and adopt a system of premium support, restructure Medicaid to limit the open-ended nature of the program, or eliminate major federal programs or agencies. These sound like the typical but impossible suggestions of a conservative think tank wonk, not to mention a pipedream in today’s political environment.

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The second option is to pursue smaller but still meaningful reforms. These would be incremental changes that signal the desire of Republicans to respond positively to the deteriorating fiscal outlook with tangible evidence of true budget constraint. This approach, more modest but more viable, would demonstrate the willingness and ability of the governing majority not only to acknowledge the mounting deficit, but also to advance sensible conservative policy goals.

One example of an incremental reform that is ripe for consideration is legislation to facilitate the stated goal of the Food and Drug Administration (FDA) of promoting fair competition among pharmaceuticals. Closing one particular loophole that brand drug manufacturers can use to block generic competition would save the federal government and private payers each billions over the next decade. This roadblock to fair competition between brand and generic drugs is the misuse of Risk Evaluation and Mitigation Strategies (REMS) programs.

REMS programs are intended to provide safeguards for high-risk drugs. When utilized properly, REMS programs can increase drug safety. When misused, they prevent generic manufacturers from obtaining samples and thus from being able to apply for FDA approval to market a generic in the United States. FDA Commissioner Scott Gottlieb has expressed the “need to make sure that REMS programs maintain their role in serving public health and don’t become a tool companies can use to delay or block competition from generic products entering the market.” The FDA in November announced regulatory guidance intended to address the problem.

But the true fix lies with Congress. Lawmakers have recently considered this reform, but as a means of offsetting the additional cost of other policies or programs. This is the wrong approach. First, REMS misuse should be stopped because it is detrimental to fair competition, and Congress should not wait for companion legislation that increases federal outlays. Second, Republicans should begin to regularly pass savings measures because the fiscal outlook necessitates a governing majority willing to be fiscally conservative.

Critics of this incremental reform claim that the legislative proposal to fix the REMS loophole will be a boon to trial lawyers, a claim aimed squarely at dissuading Republicans who have knee-jerk opposition to this cottage industry. But this claim is without merit. A legislative fix that utilizes the courts does not mean a windfall for trial lawyers.

The Congressional Budget Office recently warned about the impending debt limit, which is now scheduled to be binding even sooner than previously expected. (My colleague, James Capretta, clearly articulated last week that the prudent step is to repeal this provision entirely. Unfortunately, the political appetite for repealing the debt limit is questionable, and for that reason I have previously suggested reforming instead of repealing it.)

Now is the time for lawmakers to begin to embrace sound, incremental fiscal savings proposals. Instead of naming post offices or moving small legislative reforms that are budget neutral, Republicans should vote every week for bills that chip away at the deficit. Such steps won’t solve our budget dilemma, but they will be a good practice nonetheless. Among the myriad of sensible reforms, fixing REMS misuse would be a great start. It just takes baby steps.

Alex Brill is a resident fellow at the American Enterprise Institute. He previously served as chief economist and policy director for the House Committee on Ways and Means.