Medicare

My column from today's The Fiscal Times explains why last Sunday's debate between Karl Rove and David Plouffe over health care reform really should have been aired somewhere other than This Week on ABC.

The column is below.

Health Care Budget Projections Spark Political ‘Food Fight’

Shailagh Murray of The Washington Post gives us yet another reason to despise the way Congress conducts its affairs:

Setting reimbursement rates for local hospitals, doctors, home health-care centers and other providers is a legislative ritual that amounts to one of the most effective and lucrative forms of constituent service. Delivering federal money through Medicare, the country's largest insurance program, can be a powerful tool on the campaign trail, allowing lawmakers to argue that they are creating jobs and improving the quality of health care for voters.

Every year at this time, the Social Security and Medicare Trust Fund Trustees report on the current and projected financial conditions of the two funds.  The news released Tuesday was not good, and it's likely to get worse over the next few years.

Medicare went cash-flow negative last year, and the Trustees estimate it will be insolvent in 2017 -- only eight years from now.  Social Security will go cash-flow negative in 2024 and will be insolvent in 2037 -- a more manageable 18 years from now, but four years earlier than last year's estimate.  I'm not too worried about Social Security.  Although it's long-run deficit equals 2% of taxable payroll ($111 b. per year in current dollars), a combination of indexing modifications, increased retirement age, and modest payroll tax increases can keep it solvent indefinitely.  Medicare is a different story.  It will require major surgery.  The trustees estimated its long-run deficit to be 3.88% of payroll ($214 b. per year in current dollars).  If Congress passes a major health care reform this year, that will help, but we will still be far away from long-run solvency.

I have been very careful to stay away from making a link between the current explosion in the deficit and the reform of entitlement programs like Social Security and Medicare.  It's not that I don't think that a link exists -- it's that I don't think that the case for entitlement reform depends on what part of the business cycle we are in.  The case makes sense to me based on the long-term cost projections for those programs.

In today's Washington Post, Robert Kuttner laments that so-called* deficit hawks in Congress are trying to make the link.  He opens with:

With the enactment of a large economic stimulus package, fiscal conservatives are using the temporary deficit increase to attack a perennial target -- Social Security and Medicare.

It may be that the recent increase to the deficit is temporary.  But even a temporary increase in the deficit is a permanent increase in the debt unless there is enacted some way to specifically repay that debt in the near future. 

Andrew's post this morning about Dan Rostenkowski's being attacked by his own constituents after telling them that they would have to pay for their own catastrophic health care coverage isn't just a long-forgotten event from a bygone era.  To this day, it's something that members of Congress cite chapter and verse when discussing the budget.  Like a story passed down from generation to generation, this includes current representatives and senators, the vast majority of who weren't in office when the event occurred.

I can't tell you the number of times the Rostenkowski incident has been mentioned by members of Congress at meetings I've attended.  Usually it's mentioned as a throw away line ("I don't want my constituents chasing me down the street").  But it's also often been the start of a statment ("Dan Rostenkowski found out the hard way what happens when...").  I've heard the story used by Democrats and Republicans, liberals and conservatives, and representatives and senators.

There used to be a time when elected officials didn't seek to break the budget even when expanding federal spending.  In this respect, the Medicare Catstrophic Coverage Act of 1988 is instructive.  Here is (an excerpt of) what President Reagan said when he signed it:

[I]n a moment, I will sign the Medicare Catastrophic Coverage Act of 1988. This legislation will help remove a terrible threat from the lives of elderly and disabled Americans, the threat of an illness requiring acute care, one so devastating that it could wipe out the savings of an entire lifetime. The scene is only too easy to picture. An elderly couple, perhaps one has a very long stay in the hospital; the other forced to empty the savings account, to skimp on groceries. And even for those never actually forced into this situation, there's the gnawing worry, the fear, that someday it might just happen. This legislation will change that, replacing worry and fear with peace of mind.

I'm proud to be able to note that the legislation follows the same premise as all sound insurance programs. It will be paid for by those who are covered by its services. Even so, I must add a word of caution. Every administration since the Medicare program was passed has worried about the seemingly uncontrollable cost increases in our government health care programs. Whoever the President in office, program costs have exceeded the best congressional budget estimates. Unless we're careful, it's possible that aspects of this legislation will do the same.

Stan and I are in agreement on this one.  Commissions rarely solve problems in Washington.  They're usually created to buy votes to do the very thing that the commission was set up to stop.

Most commissons do important, but obscure, work that Congress doesn't want to take the blame for.  Just listing and briefly describing currently active U.S. commissions takes 67 pages in this Congressional Research Service report.  Before you look, can you name even one commission or describe what any commissions do?

That having been said, I look back fondly on the Kerrey-Danforth Commission mainly because it was one of the few commissions that actually attempted to "tell it like it is."  A good friend, who I helped get his job with Senator Danforth, became the Commission's Chief of Staff.  They did a very thorough, timely, and expert job of reviewing the unsustainable path of entitlement spending, and they clearly presented that in their report, which I am proud to say, I still have on my bookshelf!

When entitlement reform comes up in the general election campaign, we are sure to hear proposals for a high-level Commission to deal with them.  This would take the discussions, at least in the early stages, out of the glare of the public spotlight.  Some commissions are perceived to have worked, like the Greenspan Commission in 1983.  Others, like the Kerrey-Danforth Commission in 1994, are regarded as having failed.

Here's an excerpt from a New York Times article from the time that described the reaction to the Kerrey-Danforth Commission, "Yawns greet a warning about the burning fuse on entitlements.":

Gene Steuerle holds forth on the very undemocratic impact of our generation's promises to ourselves on the tax burden of the next:

At its core, democracy is about equal rights to vote—and have your representatives vote—on the nation's current priorities. But many recent laws attempt to deny us—and, even more so, our children—the opportunity to determine those priorities.

The reason is simple, but its effects are profound. Never before in U.S. history have so many promises been made to so many people for so many years into the future. Every additional promise, no matter what its merit, only attempts to tie that fiscal straightjacket tighter around future voters.

If our tax laws merely stay the same from 2006 to 2010, for instance, government revenues would rise by several hundred billion dollars. But guess what? Most of those revenue increases are already committed, mainly to the growing costs of our current health and retirement programs.