Many Countries Have Reformed Entitlement Programs and Reform Efforts Continue

Since the 1980s, many OECD countries have enacted reforms to politically  sensitive and popular entitlement programs such as public pensions,  disability, unemployment, social welfare (social assistance) programs, and  health care. Efforts to reform pensions are continuing. Long-term concerns about population aging  and economic competitiveness are commonly cited as prompting reforms,  especially of pension programs. Supranational factors such as a desire to  meet the fiscal criteria needed for entry into the European Monetary  Union have also been cited as constituting pressures for reform. Many reform efforts began or accelerated in an environment of economic  and fiscal crisis. Stage 2: Proposal Development

In the three case study reform efforts we reviewed, once reform was on  the agenda, proposals were developed by commissions established by  governments with a strong commitment to reform. Commissions that developed proposals were generally small, but their  composition varied, as did their charters. Whether ad hoc or standing, commissions or other  specially established groups are commonly used to develop reform  specifics because they can take divisive and controversial issues out of the  usual political process, facilitate consultation and negotiation, and help to  insulate policymakers from political risks inherent in supporting a reform  package. Reform is difficult. Leadership is needed to bring this about. As experts have noted, the  tension is to build a broad coalition to assure the permanency of the  reform, while preserving the main policy initiatives sought in the reform  process. In some cases adjustments were  needed to address emerging implementation challenges. In 2001 as part  of its reform changes Sweden enacted an automatic balancing mechanism  to adjust benefits if other reform changes prove insufficient to keep the  pension program in fiscal balance. Germany’s 2004 pension reform included a  “sustainability factor” as recommended by the Rurup Commission. Pension reforms in Japan, Italy, Canada and  other countries have also included automatic adjustment mechanisms. Countries more advanced in population aging and facing  greater demographic challenges than ours have undertaken reforms of  major entitlement programs. In many countries, reform occurred despite  political processes that made it difficult. Consensus had to be built in  coalition governments, and leaders had to work across parties to achieve a  broad consensus for reform. The experiences of other countries also underline that for reform to be  enacted and sustained, it needs broad-based support that reaches across  parties and groups. For reform to occur and be sustained, the  public and policymakers in other countries were ultimately persuaded that  reform was necessary and urgent. Taken as a whole, reform processes were generally complex and  often conflict-ridden before they ultimately succeeded in enacting  legislation. To analyze how reform proposals were developed and to supplement our  analysis of the other objectives, we selected three reform efforts for more  in-depth review. The Netherlands’ disability reform was an example of an iterative process  of reform of a non-pension program and as an example of entitlement  reform in a country that has undertaken reform of multiple entitlements in  recent years. In these countries we interviewed government officials knowledgeable  about the reform process, at least one commission participant or  commission staffer, and independent experts. Pension reform: 1998. Deficit in the pension  system and unfavorable  projections for the future  solvency of the system. 4).
Why GAO Did This Study

Looking to the future, our nation faces large and growing structural deficits and escalating federal debt due primarily to rising health care costs and known demographic trends. Slowing the growth of entitlements is an essential part of the solution to these challenges. GAO was asked to identify useful insights from the entitlement reform processes in other countries. Specifically, GAO was asked to analyze (1) other countries' major efforts to reform entitlement programs, (2) the pressure(s) that led countries to undertake the reforms, (3) how reform proposals were developed, and (4) to what extent enacted reforms built in triggers requiring future actions under certain conditions; and where such trigger mechanisms did not exist, whether some adjustments nonetheless occurred. GAO conducted a literature review focusing on developed, high-income Organisation for Economic Co-Operation and Development (OECD) countries facing similar fiscal challenges. To gain a more in-depth understanding of reform process, GAO selected three efforts for further study: Sweden's pension reform in 1998, Germany's pension reform in 2004, and the Netherlands' disability reform in 2005. For these cases GAO interviewed government officials, reform participants, and experts knowledgeable about the reforms. GAO is making no new recommendations in this report.

What GAO Found

Other countries' experiences suggest that reform of entitlement programs is difficult but also possible. Several countries more advanced in population aging and facing greater demographic challenges than ours have successfully undertaken reforms of major entitlement programs. Since the 1980s, almost all of the OECD countries have restructured their public pension programs; disability, unemployment, and other programs have also been reformed. Many reform efforts began or accelerated in an environment of economic and fiscal crisis. Other prompts included longer term concerns about population aging and economic competitiveness, and supranational factors such as a desire to meet the fiscal criteria for entry into the European Union. In many countries, reform occurred despite political processes that made it difficult. Consensus had to be built in coalition governments, and leaders had to work across parties to achieve a broad consensus for reform. Commissions were generally used to develop proposals, but this was only one stage in the reform process. Leaders needed to define the problem, persuading others that reform was needed and urgent. The challenge was to build a broad coalition to assure the reform's permanency while preserving the main policy initiatives sought in the reform process. In some reform efforts political leaders used the "bully pulpit" to educate the public but in some cases commissions also helped. Achieving a broad consensus across parties and groups was key to enacting and sustaining reform. Proposals were generally developed by ad hoc commissions established by governments with a strong commitment to reform. Commissions in case study efforts that developed proposals were small, with varying composition. They removed divisive issues from the usual political process, facilitating consultation and negotiation needed to devise a reform package. Commissions also helped to insulate policymakers from political risk. Reform processes were generally complex and often conflict-ridden before they ultimately succeeded in enacting legislation. Many reforms were iterative. Following reform enactment, a need for additional changes sometimes emerged. In some countries standing commissions were established to monitor pension systems and make recommendations for change. Some recent pension reforms have included mechanisms to automatically adjust benefits if adopted reforms prove insufficient to make programs sustainable.